Treasury’s growing appetite brings pain to taxpayers

If there has been a year that the Kenya Revenue Authority (KRA) has focused all its energy in pursuit of tax cheats to grow revenues, it is 2019.

During the year, the authority fought with big and small taxpayers that it believed have not been paying their fair share of taxes. It also made attempts to bring more people into the tax net.

It was in 2019 that the taxman engineered the arrest and prosecution of several prominent business people on tax evasion, among them Humprey Kariuki and Tabitha Karanja.

So aggressive was KRA that it was accused of pushing out investors, among them sports betting companies Sportpesa and Betin, which quit Kenya citing hostility in the taxation and regulatory regimes.

Mr Kariuki, the founder of alcoholic beverage maker Africa Spirits, was at the centre of suspected Sh41 billion tax fraud at the firm. He has since distanced himself from the management of the company.

The owners of Naivasha based Keroche Breweries – Tabitha and her husband Joseph Karanja – were also charged with tax evasion, in what is part of a long-running battle with the taxman but which this year took a dramatic turn when the couple had to spend long hours holed up at their premises trying to duck arrest.

Not spared by the unforgiving KRA campaign are individual businesses that did some work for the government, mostly those who benefited from the affirmative programme that was meant to give preference to youth, women and people with disabilities for a share of State’s multi-billion shillings spending.

There are numerous cases at the courts today where KRA, working with law enforcement agencies, has charged businesses, some of them minions, with tax evasion.

KRA’s communication machinery has been on an overdrive, offering information to the public especially on the tax cheats that have been hauled to court, with the clear message that you will not cheat the taxman and get away with it.

In its aggressive mission, the authority has had its eyes on the betting industry and believes that the sector is making too much but paying too little in taxes.

The industry, however, feels it is being targeted out of perception while in reality, it is collapsing under heavy taxation.

SportPesa, which shut down its Kenya office, said it would consider a comeback only at “such time that adequate taxation and non-hostile regulatory environment is returned”.

The push for more taxes, however, might not be bearing much fruit. In the five months between July and November this year, the taxman had collected Sh628.5 billion.

This translates to about 34.9 per cent of its revenue collection target of Sh1.8 trillion - meaning that between now and the end of the financial year on June 30, it will need collect more than Sh1 trillion.

The anxiety and fear factor brought about by KRA’s actions appear to have stalled economic activities, leaving everyone guessing who will be next on its chop board.

“In 2019 we did see a more assertive and forceful KRA. However, some of these measures have been counterproductive and severely restricted the importation and clearing of certain goods,” said analysts at investment bank EFG Hermes.

“This will have had a ripple effect on the wider economy as businesses struggled to have goods to sell, impacting tax collection.”

“While clamping down on evasion is important, widening the tax net to capture individuals and companies not currently paying taxes is also important.”

EFG Hermes, however, is positive that the Treasury’s close working relationship with the International Monetary Fund (IMF) could bring about changes in the tax administration that might help KRA increase collections in 2020.

“The new Treasury team is currently working closely with the IMF to improve on tax administration, which has been the other reason why tax collections have been weakening. IMF staff visit is in the plan for early next year, so we may see some more tax-related structural policies set up in 2020,” said the investment bank.

KRA is however not done with its aggression. It is now preparing the ground to go after accountants and other professionals who assist high net-worth individuals and corporates evade taxes.

In October, President Uhuru Kenyatta directed KRA to go after those helping people evade taxes.

“Professional advisors and facilitators will also come into focus and face prosecution,” he said.

Despite the president pushing KRA to get his administration more tax revenues, he was equally aware of KRA’s aggression and even urged them to use “soft power” in ensuring tax compliance.

Uhuru, speaking during this year’s Taxpayer’s Day, noted that not all businesses or individuals are criminals out to cheat the government.

He urged the taxman to take up alternative dispute resolution mechanisms instead of engaging in never-ending court battles with some taxpayers, especially those who have a good track record.

“Where the taxpayer has not knowingly engaged in tax evasion or other criminal conduct, and where the taxpayer has a demonstrable prior record of good tax compliance … it might be better for KRA to meet the taxpayer part of the way and deliver immediate tax collections rather than wait for an outcome of a lengthy and adversarial process that may be subject to further lengthy appeals,” he said.

But the taxman continues to push Kenyans to the wall, to a point of appearing insensitive to the struggles that businesses are going through in the current harsh environment.

Some see KRA’s desperation ensuing from the Jubilee administration’s appetite for loans, gobbling up too much over a short period that it has run out of leg-room to borrow.

As a result, KRA has been tasked to come up with a magical formula to keep the government running. It is, however, finding it difficult to manoeuvre considering the sluggish economy, with many firms reporting lower earnings and in turn paying lower taxes.

 

However, it will not be easy for the taxman, which despite falling short on its tax collection target, saw its target for the 2019/20 financial year pushed up to Sh1.8 trillion.

Aware of the hole that KRA needs to fill, Uhuru gave the recently constituted Tax Appeals Tribunal three months, beginning October, to resolve the disputes between taxpayers and KRA.

Resolving the disputes could unlock billions of shillings in tax revenues for the government.

Uhuru noted that there are more than 1,000 cases and Sh300 billion in disputed tax that has been pending before the tribunal as well as courts for more than two years, which he said represented “a significant bottleneck in the tax administration process”.

“We have a new Tax Appeals Tribunal, and I want a report from you within three months on what you have done to expedite those cases, failure to which, as I have always reminded each civil servant, many Kenyans are waiting for these jobs... we want it done,” said the president.

He also urged the courts to expedite tax cases.

“I call on the Judiciary... to strive to determine expeditiously tax disputes without fear or favour. Both the taxpayer and tax authority deserve quick and efficient hearing to know the outcome of their cases as soon as possible,” he said.