Confusion rocks tax payment after ruling on Finance Act 2023

Federation of Kenya Employers board member Mike Macharia, National President Dr Habil Olaka and Executive Director Jacqueline Mugo during a press briefing on the state of the business operating environment. [Wilberforce Okwiri, Standard]

There is confusion among taxpayers as to how they will go about remitting taxes, following the Court of Appeal ruling that the Finance Act 2023 is unconstitutional.

This comes after the Supreme Court rejected the National Treasury’s request to issue a stay order that would have allowed the government to continue collecting taxes even as the case is heard and determined at the apex court.

This has meant that the Kenya Revenue Authority (KRA) may not collect taxes that were introduced by the Finance Act 2023, including higher pay-as-you-earn (Paye) taxes for high-income earners, the 16 per cent value-added tax (VAT) on petroleum products that had previously attracted VAT of eight per cent and the affordable housing levy.

The Federation of Kenya Employers (FKE) on Friday noted that despite the pronouncements by the courts, KRA has not adjusted its tax systems to reflect the ruling by the Court of Appeal as well as the refusal by the Supreme Court to issue stay orders. “FKE regrets that our members and indeed all taxpayers in Kenya are unable to remit taxes in accordance with the judgement for the reason that the KRA has not yet configured its systems to comply with the Court of Appeal judgement,” said FKE Executive Director Jacqueline Mugo in a letter to the Commissioner General KRA.

“The purpose of this open letter is to ask KRA to urgently clarify to employers and all taxpayers in Kenya how they should pay their taxes in view of the Court of Appeal judgement. We also note that today, August 9, 2024 is the last day for remittance of July 2024 taxes and our members may face penalties if KRA does not immediately address this concern.”

While KRA might not be able to collect the higher taxes that were introduced by the Finance Act 2023 following the Court of Appeal judgement, Kenyans might also stand to lose as it also nullifies some measures that dropped taxes for certain goods.

The Act zero-rated VAT on cooking gas, which was taxed at eight per cent, which would be reinstated. The Act also dropped excise duty on telephone and internet data services and money transfer services by banks, money transfer agencies and other financial service providers from 20 per cent to 15 per cent.

When delivering the judgement, the Court of Appeal noted that taxpayers would not be demanding a refund of the taxes paid over the year that the Finance Act 2023 has been in place. This was based on the presumption of constitutionality of statutes which holds that statutes are considered constitutional unless a court judgement declares them unconstitutional.

This could also be the case for other benefits that Kenyans enjoyed courtesy of the Act such as the tax amnesty that waived penalties and interest accrued to December 31, 2022, provided the taxpayers offered a payment plan for the unpaid tax.

“Relying on the presumption of constitutionality, we would also assume that exemptions that were enjoyed would not be clawed back,” said analysts at Bowmans Kenya.