An ongoing five-year tiff between the National Treasury and Kenya Revenue Authority (KRA) regarding tax procedures and enforcement has so far cost the country billions of shillings meant to finance budgets and projects.

Treasury, the parent ministry involved in the formulation of tax policies, has been overruling some of the KRA’s decisions that were against issuing of hefty tax abandonments to a couple of companies through Treasury undertakings.

Between January 2018 and February 2023, the National Treasury undertook tax waivers and abandonments worth Sh47.68 billion, of which Sh28.25 billion relates to customs and the remaining Sh19.43 billion is linked to domestic taxes.

Ideally, Treasury undertakings, which is allowed in the Tax Procedures Act 2015, refer to taxes or customs duties that the National Treasury commits to pay on behalf of the taxpayers to promote certain activities of public interest such as national security or humanitarian matters.

Unpaid undertakings

Although the Treasury is not expected to eventually exempt these taxes, it instead asked KRA to regularise the unpaid undertakings as collected money, leaving the authority suffering shortfalls. 

 “And this (Sh28 billion) is what we have been asking from the Treasury. Sometimes we engage the Treasury in demanding these undertakings,” KRA acting Commissioner General Rispah Simiyu told the Departmental Committee on Finance and National Planning that is gauging all tax reprieves offered in the past five years.

“The ones indicated here (in the report) has not been paid. What would happen is Treasury would not pay but they would allow us to recognise it as tax collected. As that undertaking note comes in, it should have formed part of our revenue collection” she added. KRA has always protested some of these undertakings since the concerned companies and ministries, which act as withholding tax agents, actually collected the taxes from consumers but failed to remit the same to KRA due to existing treasury commitments.

While the benefiting taxpayer is required to apply for undertakings, KRA is expected to enforce the directive arising from the application but can offer a contrary recommendation if it feels the move contravenes the tax policy.

The four major cases in contest include the Sh8.2 billion taxes that the National Treasury and Economic Planning ministry allowed Kenya Brewers Ltd (KBL) abandon in 2021which KRA has now sought formal review to reverse the decision, citing unjustified grounds.

It also allowed London Distillers Kenya (LDK) to abandon 80 per cent (or Sh265.6 million) of the outstanding principal excise duty in 2021 that was self-declared by the alcohol manufacturer. The matter is currently before the Court of Appeal. “This is pure theft because this is tax the consumer actually paid. What is very interesting is that Treasury is pressuring KRA to collect and achieve targets while they are abandoning,” said Molo lawmaker Kuria Kimani who also chairs the National Assembly’s Finance Committee.

In the case of the Ministry of ICT, the National Treasury undertook Sh612 million agency tax that was supposed to be remitted to KRA out of the total tax assessment of Sh1.42 billion in principal.

Withholding tax

The principal was raised against the Ministry of ICT for failure to withhold and remit Withholding Tax on payments to project contractor Huawei Technologies Ltd in the Konza Project. Huawei later paid Sh812.6 million. KRA also missed unremitted agency taxes abandoned to Maendeleo ya Wanawake Organisation amounting to Sh38.36 million, out of which Sh25.2 million was Value-Added-Tax (VAT) and Sh13 million being Pay-As-You-Earn (PAYE).