Parliament has written to the Court of Appeal over delays in hearing a case challenging tax breaks given to Japanese workers and companies.
In a letter to the Deputy Registrar of the Court of Appeal, Parliament indicated that the six-month suspension of the ruling repealing Section 13 of the Income Tax Act would expire this month, but the appeal was not heard.
In February last year, the Supreme Court declared this section unconstitutional, noting that then-Treasury Secretary Okur Yatani did not have the powers to grant the waiver.
“The orders are due to expire on 19 June 2024, yet the appeal has not been heard and decided, which could have the following impacts,” Andrew Imakar, who represents Parliament, said in the letter.
One effect is that Japanese consultants, companies and employees will have to pay income tax, thus violating one of the conditions precedent for grants to Kenya from Japan, Imakar said.
The other is that all applications for exemption or waiver of taxes under various laws, which amount to hundreds per day, must be subject to public participation.
Supreme Court Justice Denis Magarey had ruled that the exemption or waiver of taxes can only be granted by Parliament through legislation and after its passage as a finance bill as stipulated in the Constitution, and after public participation.
The judge also struck down Section 13(2) of the Income Tax Act, saying it was unconstitutional to the extent that it allowed exemptions from income tax by notification in the Official Gazette and to specified persons without regard to Section 210 of the Constitution.
Mr Yatani had exempted income tax for companies, consultants and workers who secured 15 projects funded by Japanese companies worth Sh328 billion.
On appeal, Parliament and the Treasury said that after the repeal of this section, there is no legal framework for tax exemption, yet Article 210 of the Constitution envisages a scenario in which an individual can be exempted from paying taxes.
The court heard that without the waiver, there was bound to be a level of apathy, especially among investors such as those subject to the Japan International Cooperation Agency (Jica) programme, who ventured to invest in the country after the waiver.
According to the Treasury Department, the exemptions were granted under a contract between the Kenyan and Japanese governments. By reviewing the terms and imposing taxes after they have already started projects in Kenya, the Treasury notes, the Treasury notes, will change the basic terms of the contract between the two countries without negotiations, which could lead to ongoing projects being halted.
Judges Daniel Musinga, Asike Makhandeya and Mumbi Ngugi suspended the decision for six months from December 19, pending the hearing of the appeal.
“In these circumstances, it appears to us that in view of the far-reaching nature and magnitude of the declarations and orders of the lower court, an order stopping the entry into force of the declarations of invalidity of the impugned statutory notice and unconstitutionality of the section is due,” the judges said.
