The Council of Governors (CoG) is opposing the move by the Kenya Revenue Authority (KRA) to impose Value Added Tax (VAT) on revenue raised by counties.
In a statement dated Monday, June 10, 2024, the council through its chairperson Governor Anne Waiguru accused KRA of encroachment on the powers to impose VAT on counties’ revenue sources and attendant interest and penalties.
Waiguru added that VAT is a consumption tax that is levied on the value-added and that raising own sources of revenue by counties does not correspond with a service provided.
“We take the greatest exception to these unwarranted demands which are unfounded and undermine the principles of Article 6(2) of the Constitution, KRA demands from County Governments for Value Added Tax (VAT) on various Counties’ revenue sources and attendant interest and penalties,” the statement reads in parts.
“Raising own source revenue by counties does not necessarily correspond with a service provided, neither does it fall under any stage of production, VAT is a consumption tax that is levied on the value added at each stage of a product’s production and distribution.”
The COG further stated that KRA’s move on imposition of VAT is unconstitutional adding that the authority has no basis for these demands.
“We, therefore, find the demands by KRA on imposition of VAT on Counties’ Own Source Revenue (OSR) unconstitutional and an encroachment on the powers to impose taxes and duties of the Counties in contravention to Article 209 (3) and (4) of the Constitution,” COG said.
VAT is a consumption tax that is levied on the value added at each stage of a product's production and distribution. Raising own source revenue by counties does not necessarily correspond with a service provided, neither does it fall under any stage of production. @KRACorporate pic.twitter.com/JhQ0ZpBaD4
— Council of Governors (@KenyaGovernors) June 11, 2024
“Services provided by Counties in the performance of their functions as set out in the Fourth Schedule of the Constitution are exempt and therefore not subject to VAT. It is on this premise that we find that the KRA has no basis for these demands.”
The governors say finance laws enacted by the counties do not load the revenue streams and sources with VAT as contemplated by KRA, they add that the authority should cease from making any demands for VAT.
“We therefore maintain that Kenya’s constitutional architecture does not envisage that the National Government will impose taxes on revenues raised by the County Governments. Furthermore, all Finance laws enacted by counties do not load the revenue streams and sources with VAT as contemplated by KRA,” COG added.
“Therefore, there is no logic at all for counties to charge VAT on their own source revenue or to remit the same to KRA, we, therefore, demand that KRA cease forthwith from making any such demands for VAT on Counties’ revenue sources as the same is bereft of any legal backing.”
Threatening to seek legal action if the matter is not addressed, the governors said they are open to discussing and finding an amicable solution.
“The Council is however open to discussions geared towards reaching an amicable solution on this issue. We wish to state that if no action is taken and this unconstitutionality continues, we will be left with no option but to seek legal redress without any further,” COG stated.
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