“President Ruto’s puzzling move: Bolstering KRA’s weaponry while pledging tax leniency?”

On Wednesday May 10, 2023, shocking news emerged that President William Ruto had made a surprising move to arm the Kenya Revenue Authority (KRA) despite his previous promises of a soft stance on taxation. The proposed changes contained in the 2023 Finance Bill, some of which were rejected in prior parliamentary sessions, indicate that the government is aiming to strengthen the KRA’s authority and make it more difficult for taxpayers to appeal tax demands in the face of the most taxing year for employees and firms. The amendments to the Tax Tribunal Act and the Tax Procedures Act (TPA) would also grant the KRA commissioner-general more power to pursue tax evaders and take away their abilities to abandon taxes. The Finance Bill proposes repealing TPA provisions that permit relief due to doubt or difficulty in tax recovery, meaning taxpayers should brace themselves for a more aggressive revenue authority.

Taxpayers will also be required to deposit 20% of the disputed tax ahead of filing any appeals to the High Court. Inexplicably, KRA would not be exempt from this condition should it choose to appeal the tax tribunal’s decision. Further proposed amendments would increase the commissioner-general’s purview to amend tax assessments beyond the current rule that confines amendments to the original assessment. The Finance Bill also suggests reducing the window for withheld VAT remittance from 20 days following the taxation period to three days post-deduction. If the Bill passes as proposed, the KRA will be empowered to appoint real estate agents as tax withholding agents and require certain industries to remit excise taxes daily.

Experts anticipate an even less forgiving KRA as a result of the abolition of relief due to doubt or difficulty in recovery of tax. These changes could spell trouble for taxpayers and are predicted to cause a reduction in tax expenditures connected to abandoned taxes. The government’s total tax waivers as a component of tax expenditures increased from Sh267.1 billion in 2020 to Sh316 billion in 2021, totalling an estimated 2.61% of GDP. However, critics argue that forcing KRA to recover all due taxes at all costs is a Catch-22 predicament because of the difficulty of retrieving arrears. Tax analysts at PwC claim that “KRA will be forced to undertake burdensome enforcement measures that may be disproportionate to the tax that they are seeking to recover.”

The proposed changes are expected to have a significant impact on businesses already reeling from the suspension of tax refunds and awaiting audit and assessment of tax relief processes and procedures. During his presidential campaigning, Dr Ruto strongly criticised the previous administration’s taxation philosophy and promised a more lenient revenue administrator. The sudden about-face has left many perplexed and agitated.