Court stops KRA from demanding Sh427 million tax from Kidero

Former Nairobi Governor Evans Kidero got relief in his fight with the Kenya Revenue Authority after the court suspended an order requiring him to pay Sh427 million tax arrears.

Justice David Majanja stopped KRA from enforcing the order that allowed it to collect the amount pending determination of an appeal filed by Kidero at the Court of Appeal.

“Pending the hearing of the application, an order be and is hereby issued suspending execution of the judgment and decree issued on February 4 which granted KRA permission to recover Sh427,269,795 from the applicant,” ruled Justice Majanja.

The judge had on February 4 ordered Dr Kidero to pay KRA the amount after finding that he had no proof that the money from audited accounts to bankroll his then Nairobi County Governor’s seat was donated by his friends.

The dispute dates back to 2016 when KRA conducted an audit of Kidero’s financial and business accounts for the income period of January 2011 to December 2015 and handed him a Sh680 million tax bill that included penalties and interests.

The former governor challenged the taxation at the tax appeals tribunal, arguing that out of the money, Sh423 million was donations for campaigns.

He won at the tax tribunals when it held that the money raised for his campaigns should not be taxed.

But KRA moved to the High Court’s Commercial Division where Justice Majanja ruled that he had no proof the money was from his campaign accounts and allowed the taxman to collect the disputed amount.

Kidero, in his appeal filed through lawyer Ochieng Oduol, argued that the decision was unjust and a great denial of justice.

“The learned judge erred in law in making orders that violated the Constitution of Kenya, the due proper administration of Justice and the Tax Procedures Act. Further, the learned judge failed to handle the matter for the purpose of attaining a just determination thereof,” said Oduol.

He accused the judge of subverting the need for uniformity and consistency in determining tax disputes, stating that he did not properly assess the tax obligations which were due for remission to KRA.

According to Oduol, Justice Majanja ignored material facts that were admitted before him that the money was for campaign activities and should not be treated as income tax.

“He made a mistake by failing to appreciate Section 3(2) of the Income Tax Act which requires income tax to be based on gains or profits. Instead, the judge ignored all the explanations and documents advanced by Dr Kidero in support of political campaign expenditure,” said Oduol.

He added that although the judge correctly noted that political campaigns funds are not subject to tax, he missed the point when he said Dr Kidero did not prove the claim when it is not possible to document all expenditure during political campaigns.

Oduol submitted that it is not possible to subject political campaign funds to documentation the same way it is done in businesses and that it will be impossible for any politician to be asked to provide receipts of his political expenses.

“The judge ignored the peculiar circumstances of election campaigns in Kenya being that most expenses are disbursed in cash but instead placed an unreasonable burden on Dr Kidero. He even failed to find that investigations into the campaign funds were discriminatory since other politicians are not subjected to the same treatment,” he said.

Kidero wants the Court of Appeal to overturn the decision which he claims is erroneous and meant to punish him while leaving other politicians who have not been told to account for their campaign funds.

Background:

On February 8, High Court ordered Kidero to pay Sh423 million to the KRA in taxes after he failed to prove that funds donated to him between 2011 and 2015 went to his election campaign contributions.

An audit carried out by the Commissioner for Domestic Taxes established that the proceeds from the fundraiser by Kidero had been deposited together with other business proceeds into his personal bank account.

In his ruling, High Court judge David Majanja found that the burden of proof lay on Kidero to demonstrate that the funds raised for campaigns were only utilised for the elections.

"In sum and for the reasons I have elucidated above, I agree with the Commissioner that the Respondent failed to discharge his burden as the evidence on record could not support the conclusions reached by the Tribunal," Majanja held.

To the 2020 tax tribunal, Kidero had provided receipts and mobile numbers of those he said were the contributors. KRA, however, insisted he ought to pay tax for the same.

The tribunal was satisfied with Kidero's information and shifted the burden of proof to the Commissioner.

“The tribunal takes note of the nature of political campaigns in Kenya and makes a finding that in the instant case, the appellant was able to demonstrate the source of the funds.

"The nature of fundraising or harambees as commonly known is that people are invited and give their contributions often from taxed incomes, sometimes without any records of the same and furthermore, there was no requirement for the taxpayer to produce a record of each and every taxpayer,” the tribunal concluded.

This prompted the Commissioner to move to the High Court and appeal the tribunal's ruling.