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Tax disputes deny KRA Sh313 billion in revenue

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Court cases have led to the withholding of Sh313.5 billion in uncollected taxes, highlighting the negative impact of disputed orders on the Kenya Revenue Authority (KRA) revenue increase.

This was included in disclosures released by the Parliamentary Budget Office (PBO) which showed 747 cases in the Tax Appeal Tribunal (TAT) holding Sh165.1 billion and another Sh148.4 billion in 541 ongoing court cases.

Billions in unrealized taxes point to a growing number of cases where individuals and businesses challenge the KRA’s interpretation of tax laws while others oppose the claims on the grounds that they are wrong.

The KRA is under increasing pressure to miss its tax revenue targets, even as individuals and businesses denounce the tax that has hurt local spending power and business profits.

“Ongoing legal challenges highlight the complexity and financial impact of unresolved tax disputes, underscoring the need for effective resolution mechanisms to release this significant amount of revenue for the government,” the OMB says.

The office adds that there is a need for KRA to change and improve its relationship with taxpayers. The OMB advises MPs on budget planning, economic and policy matters.

Most of the cases have been either in court or at the TAT for years, as taxpayers seek to thwart the KRA’s aggressive attack.

Recently, KRA’s efforts at tax compliance drew criticism from President William Ruto, who instructed tax officers to slow down in what he called harassment of Kenyans.

“Effective revenue collection does not have to be inconvenient and offensive to members of the public. It is possible to be courteous, courteous and courteous to taxpayers, while at the same time becoming more effective and efficient in collecting taxes.” Ruto in October last year.

The budget office adds that 2,543 issues were resolved, resulting in tax collections worth Sh71.89 billion. The office did not reveal how long these cases had been pending.

In the face of increasing lawsuits from aggrieved taxpayers, KRA has over the years resorted to arbitration to resolve disputes with aggrieved taxpayers.

Taxman launched Alternative Dispute Resolution (ADR) in 2015 as a way to speed up the resolution of cases of taxpayers who disagree with tax demands from the KRA. ADR is seen as the first platform to resolve cases before they escalate to the TAT or the courts in case the parties fail to agree.

However, tax cases of a criminal nature, such as evasion or fraud, cannot be heard via ADR.

“There is a need to improve the relationship between KRA and taxpayers. Key among these strategies is the promotion of the ADR framework, which offers a more collaborative and less adversarial approach to resolving tax issues,” the PBO added.

Before the KRA rolled out the ADR, aggrieved taxpayers used to challenge tax demands at the TAT, which began in 2013. Those who are not satisfied with the Appellate Body’s ruling will seek relief in the Supreme Court.

The KRA has also resorted to amnesty in a bid to woo taxpayers who have outright opted not to settle their dues, leading to an accumulation of penalties running into billions of shillings.

For example, taxpayers who incurred interest and penalties up to December of last year are currently subject to an amnesty program. The relief was introduced through the Finance Act 2023 and allows taxpayers to propose a payment plan for amounts owed.

The KRA has been given a target of Sh2.91 trillion for tax collection for the current financial year ending June 2025, up from Sh2.54 trillion in the last financial year.

Besides settling pending cases in the TAT and courts, tax officers are also banking on expanding the tax base and clamping down on evasion to achieve the ambitious target.

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