The Kenya Revenue Authority (KRA) dished out tax waivers to the tune of Sh3.4 billion to businesses and individuals who had not applied for them, even as top-level government officials claimed to crack down on heavy tax expenditures.
During the year to June 2023, the Auditor-General revealed, KRA granted 273 waivers and tax variations totalling Sh3.44 billion.
This was a Sh3.2 billion (about 15 times) increase from the Sh218.4 million waivers and tax variations granted in the year to June 2022.
“However, out of the 273 waivers and tax variations granted, 133 waivers totalling Sh3,401,193,296 did not have iTax acknowledgement numbers, an indication that they were not applied for online as required by Chapter,12.0.3 of the Domestic Tax Department Corporate Taxpayer Accounts Management Manual on the management of waivers of interest and penalties in iTax,” said Auditor-General Nancy Gathungu.
The report on the KRA’s revenue accountability statements for the year to June 2023 notes that the taxman breached guidelines by granting waivers for businesses and individuals who had not applied for them as legally required.
The Treasury, in a report released last October, noted that tax expenditures for the government reached Sh393.6 billion in 2022, from Sh292.9 billion the previous year. The four years to 2022 saw the government give tax concessions totalling Sh1.18 trillion.
Tax expenditures are revenues the government foregoes as a result of giving tax concessions or preferences to a particular class of taxpayer or activity.
“VAT Domestic contributed the highest to the tax expenditures (36.94 percent) followed by Corporate Income Tax (19.87 percent) and VAT on fuel (16.38 percent). Excise duty contributed the least at less than 0.55 percent,” said Treasury Cabinet secretary (CS) Njuguna Ndung’u.
The minister said to ensure sustainability and value for money from the resources foregone through tax expenditure, the government would continue to rationalise and harmonise the tax expenditures with the aim of removing “redundant tax expenditures while enhancing those intended to promote investments”.
To help tackle illegal waiver of taxes deemed uncollectible, the National Assembly Finance and Planning Committee has proposed to clip the powers of KRA Commissioner-General and Prof Ndung’u in granting such relinquishments.
The Finance Bill, 2024 sought to eliminate the legal vacuum and return the clause that gave the KRA and the Treasury the powers to grant tax waivers. The MPs however rejected the proposal and insisted on changes that would require KRA to publish waivers of taxes deemed uncollectible and seek Parliamentary approval.
“The Committee proposed additional checks and balances on the power of the Commissioner thus recommended that the provision be amended to require the Commissioner to publish in the Kenya gazette on tax abandonment and submit it in the National Assembly for approval” the committee said.
Last year, the 2023 Finance Act amended the Tax Procedures Act by deleting provisions allowing relief from pursuing unpaid tax because of doubt or difficulty in recovery of tax on the part of the Commissioner.
The Commissioner’s discretion to waive penalties and interest for taxpayers including making recommendations to the exchequer for waivers was also scrapped. Previously, the commissioner with the approval of the National Treasury Cabinet Secretary had powers to refrain from collecting taxes under specified scenarios including impossibilities in recovering an unpaid tax.