KRA notices now force counties to clear tax backlog

 

KRA headquarters in Nairobi. The taxman is targeting rich counties. FILE 

By GEORGE NGIGI and MUNA WAHOME

In Summary

• Bank accounts of Nairobi and Mombasa counties have lately been attached by KRA in a bid to enforce payment of accumulated tax arrears.
• The accounts were only unfrozen after the counties made initial agreed payments, enabling them to meet other obligations to workers and suppliers.
• By last October, 175 councils owed at least Sh17.3 billion to statutory and private creditors with only 44 of them able to regularly pay workers.

The taxman is applying hard ball tactics to force rich counties to accept tax liabilities and commit to repayment plans.

Bank accounts of Nairobi and Mombasa counties have lately been attached by the Kenya Revenue Authority in a bid to enforce payment of accumulated tax arrears. The accounts were only unfrozen after the counties made initial agreed payments, enabling them to meet other obligations to workers and suppliers.

“Nairobi’s was unfrozen just before Mombasa’s. If they do not honour the plans, we will reinstate the freeze,” said KRA Domestic Tax Department Large Taxpayers office commissioner Pancrasius Nyagah.

They owe Sh1.5 billion between them, arising from the former city councils, besides the cash due to statutory bodies. KRA Large Taxpayers Office (LTO), which deals with only the three richest counties, told the Business Daily only Kisumu had escaped the action as it “had no problem with its taxes.”

By last October, 175 councils owed at least Sh17.3 billion to statutory and private creditors with only 44 of them able to regularly pay workers.

KRA, which has unfrozen the Nairobi and Mombasa accounts, had taken the punitive action in an effort to force them to admit liability and structure a payment plan for arrears.

Nairobi County had to make a Sh100 million deposit for its account to be unfrozen due to arrears in excess of Sh1 billion while Mombasa promised to pay Sh30 million as a down payment for its Sh471 million arrears. Sources in the council, however, said the county government could only raise Sh25 million, but KRA unfroze the accounts.

(Read: Mombasa county 'unable' to pay its workers)

The smaller counties are dealt with by the department handling smaller taxpayers. Mr Nyagah could not confirm whether the counties were still in compliance.

Nairobi under governor Evans Kidero is the largest defaulter with most of the liabilities being carried over from the City Council of Nairobi (CCN). According to Mr Nyagah, if you remove interest and penalty arrears, the actual tax amount comes to about Sh500 million.

Like other taxpayers, the counties can only get off the hook on account of penalties and interest if they appeal to the Treasury secretary to waive the amount.

Unlike for other creditors, KRA can demand its debt through placement of “agency notice” on bank accounts, which means defaulters cannot discharge other obligations as any cash that comes in is handed to KRA.

“I hereby declare you to be agent of the above taxpayer (Mombasa County) and require you to pay me the sum of Sh162,752,172 being tax due by the said taxpayer,” reads one of the memos fired to KCB Bank from the acting senior deputy commissioner (domestic taxes), E. Meyo.

The arrears relate to lack of transmission of Value Added Tax.

Mombasa County, however, pleaded with the taxman to waive the interest and penalties and allow it to settle the principal amount of Sh251 million in 12 months. This will see the county pay Sh20.9 million on the 28th day of each month.