CASH FLOW ISSUES

Manufacturers to contest Yatani's new tax dispute proposal

Taxpayers appealing a Tax Appeals Tribunal decision will pay 50 per cent of the disputed amount to CBK.

In Summary

• In the proposed amendment by Treasury CS UKur Yatani, taxpayers appealing a decision by the Tax Appeals Tribunal will be required to pay 50 per cent of the disputed amount in a special Central Bank of Kenya account prior to the submission of any objections.

•Currently firms in Tax dispute with KRA only have to pay the money once the court process is exhausted including all appeals.

National Treasury CS Ukur Yatani during a past budget reading event/FILE
National Treasury CS Ukur Yatani during a past budget reading event/FILE

Manufacturers and business owners have rejected plans by the National Treasury to compel firms deposit half of their disputed tax in government coffers pending determination.

In the proposed amendment by Treasury CS UKur Yatani, taxpayers appealing a decision by the Tax Appeals Tribunal will be required to pay 50 per cent of the disputed amount in a special Central Bank of Kenya account prior to the submission of any objections.

The CS said this new proposal is meant to issue of tax disputes taking too long to conclude at the Tax Appeals Tribunal locking potential taxes from the Kenya Revenue Authority.

The government is planning to raise Sh2.1 trillion through KRA to supplement the Sh3.3 trillion budget for the coming financial year.

Currently firms in tax dispute with KRA only have to pay the disputed tax once the court process is exhausted including all appeals.

Kenya Association of Manufacturers (KAM) policy, research and advocacy head Job Wanjohi says the proposal comes with a myriad of ramifications including cash flow issues to businesses in Kenya.

"It (the proposed amendment) leaves manufacturers in a tough position. Even the refund if one wins the case will take longer than what is stipulated in the law," Wanjohi told the Star.

The deposited amount is to be refunded to the taxpayer within 30 days after the final determination by the courts if decided in favour of the taxpayer.

Wanjohi said Local manufacturers who are currently trying to recover from the Covid-19 pandemic will be left in a financially depressed position if the proposal is passed.

"We are gong to face the parliamentary Committee of Finance and table our petition," Wanjohi said.

Francis Kamau, partner and tax leader at financial consulting firm, Ernst & Young, East Africa says the pressure that will come from KRA will force business owners to agree on taxes which are not payable just to conclude on a tribunal so that they don't have to pay the deposit.

"We will take this upManufacturers to contest Treasury over new tax dispute proposal, even if it means working with lawyers to look at provisions in the constitutions, we will fight it in all manner of forums we have," Kamau said.

Tanzania charges 30 per cent tax deposit before which is said to repel investors in the country.

A taxpayer is required to deposit the higher of one third of the assessed tax or an amount which isn’t in dispute before submitting an objection to a tax decision of the Commissioner General.

KRA has been leaning more towards its out of court negotiations process-initiated in 2015-in resolving tax disputes because of flexibility, cost-efficiency, confidentiality and time-consciousness.

Kenya Revenue Authority’s Alternative Dispute Resolution recorded a 31 per cent growth, resolving 319 cases in the first quarter of the 2021/2022 financial year compared to 243 same period last year.

The taxman collected Sh10.493 billion through the ADR  compared to Sh9.447 billion collected during a similar period in the Financial Year 2020/2021.