Why there's no love lost between KRA and taxpayers

“I know of people who’ve died as a result of stress from tax issues and businesses that have gone down,” says Mr Obadiah Kimani, opening up on the downside of taxation.

Mr Kimani, who runs a consultancy firm, has been a tax practitioner for over 30 years and has penned two authoritative books on the subject.

He says that for the last few years – in a bid to meet ever-rising tax revenue targets – the Kenya Revenue Authority (KRA) is leaving a trail of dead businesses and frustrated entrepreneurs.

And while everyone should “render unto Ceasar what belongs to him,” KRA also appears to have perfected the art of making surprise tax demands.

“An efficient tax system should be able to gather information accurate enough for each taxpayer and collect the same as opposed to having a very big hammer on small issues of tax and completely disrupting businesses,” Mr Kimani told this writer last month during the launch of his book, Understanding Tax Administration in Kenya.

He said Kenyans resent paying taxes due to harassment and improper approach by the tax authority.

“The approach is still wanting. We need a more sober and realistic way with several considerations such as the background of the taxpayer, who could be a victim of circumstances,” he said.

Former KRA Commissioner-General Michael Waweru said every entrepreneur should learn about tax management from the onset.

“By the time one gets into trouble with KRA, they are in so deep that they don’t know how to get out, and when they do, somebody is trying to take undue advantage,” said Mr Waweru. An aggressive KRA also at times issues agency notice on businesses that are struggling to pay tax, making it harder for them to remain afloat. Here, an agency notice is issued to a bank holding the deposits of a taxpayer or business entity.

But it is, perhaps, the ruling by Justice Weldon Korir in November last year that exposed the Leviathan that KRA has become.

The judge told KRA to stop killing local companies in the guise of collecting taxes as it, in turn, affects thousands of families whose breadwinners are rendered jobless once the companies are shut down.

“When KRA proceeds to kill businesses in the guise of collecting taxes, it becomes an undertaker and will itself eventually die since its survival depends on the existence of income-generating businesses from which it can collect taxes,” said Justice Korir.

He had ordered KRA to immediately reopen Mount Kenya Breweries Ltd, which it had closed over allegations that it had 16,600 bottles of beer affixed with fake excise duty stamps.

According to the judge, although KRA is justified to collect taxes and the companies have an obligation to declare and remit their taxes, closing their premises and stopping them from operations is not the right way to deal with tax evasion.

But KRA in response argued that it was not seeking anything more than its fair share of taxes and that the judge failed to appreciate the amount of revenue at stake.

Historically, nobody seems to like paying taxes. In Kenya, tax was introduced by colonialists as an oppressive tool and was referred to as Hut Tax, aimed at funding the colonialists’ activities.

“The bad part of it is that it (tax) wasn’t introduced for the good. It was oppressive to the local community. It was a source of revenue to the colonialists; it was racial,” noted Mr Kimani.

“By the time independence came, nothing changed...,” he added on why taxation seems punitive.  

The former KRA boss, Mr Waweru, however, disagrees that the taxman is out to kill businesses, noting that some enterprises just don’t want to fulfil their tax obligations.

“I don’t think their intention is to kill businesses, but it’s unfair that certain sectors of the economy are consumers of government services and don’t pay their fair share,” he said.

“If you are in business, whether running a kiosk or a big company, you have to keep your records such as sales, purchases and other costs and tax. Being asked to pay is not being killed.”

Mr Waweru added that businesses can thrive and be profitable while still paying taxes.

He explained that KRA’s work is to ensure a level playing field.

The taxman, he said, relies on a revenue model popularised by the Australian Tax Office where pressure is applied downwards, with those at the top being non-compliant and those at the middle being facilitated or educated.  

The former tax Czar said those who feel the full force of the law are the ones on top.

“From my point of view as the head of revenue administration, if you are here you are not a customer,” he said.

Mr Waweru, who was the commissioner-general for nine years during President Mwai Kibaki’s administration, said his proudest moments were when he exceeded revenue targets – a feat he accomplished nine times. He said he achieved this by strengthening his team, paying them well and stamping out corruption.

There are plans to endear the taxman to Kenyans with a proposed name change as part of reforms that also include simplifying the tax filing process.

The government wants it called Kenya Revenue Service as calling it an “authority” makes the taxman sound antagonising.

“The change of name is intended to rebrand the authority and transform its public image, thus enhancing tax compliance through improved public relations and maintaining a clear focus on taxpayers’ needs,” said the Treasury Cabinet Secretary, Mr Ukur Yatani.

Meanwhile, Mr Kimani, the tax consultant, explained that no Kenyan is opposed to paying taxes as long as they are involved in the decision-making process. They also want to know how taxes are utilised and the collection model doesn’t put them out of business.

Kenyans, he added, should also participate more in how their taxes are used as that would encourage them to voluntarily contribute. This is a function of Parliament and the Executive, with KRA only tasked to meet revenue targets.

“If there was participation in terms of expenditure, Kenyans would feel more encouraged to contribute voluntarily,” said Mr Kimani.

There are also concerns that KRA is turning lucrative sectors such as alcohol into cash cows, with most of the tax disputes being with brewers.

KRA has ensured all alcohol manufacturers’ premises are fitted with a mass custody flow metre, a radar to monitor what enters their tanks, and CCTV cameras.

Ms Tabitha Karanja, the founder of Keroche Breweries, has been at loggerheads with the taxman.

She has been through the courts and alternative disputes resolutions to ward off KRA’s sustained campaign to get its “fair share of taxes”.

The alcohol sector continues to be hard hit, with the Finance Bill, 2022 showing that the government will continue to raid beer makers to fund the Sh3.3 trillion 2022/2023 Budget.

The National Treasury plans to raise Sh300.96 billion from excise duty, popularly known as sin tax.

Treasury wants cider, perry, mead and opaque beer as well as mixtures of fermented beverages with non-alcoholic beverages and spirituous beverages of an alcoholic strength not exceeding six per cent to be taxed at Sh134 per litre, up from the current Sh121.85.

The Sh12.15 rise in excise duty per litre sets the stage for an increase in the price of beer by more than this margin once inflation adjustment is effected in the upcoming 2022/23 financial year.

KRA has also set its eyes on the thriving online space after introducing the digital service tax. The tax is payable on income derived or accrued in Kenya from services offered through a digital marketplace.