MPs warn Sh2.4 billion tax dispute between KRA and NG-CDF could paralyse constituencies

Members of Parliament have urged the Treasury to step in amid a growing tax dispute between the Kenya Revenue Authority (KRA) and the National Government Constituency Development Fund (NG-CDF), warning that unresolved arrears of Sh2.4 billion could paralyse constituency operations.

The standoff has intensified over disagreements on how the taxes were assessed, the legality of older charges, and fears that some constituencies may be unable to operate if the impasse continues. NG-CDF managers say the arrears were imposed without proper consultation or transparency, while KRA insists it followed due process in issuing the assessments.

Documents presented to the National Assembly Committee on Finance and National Planning by Treasury Cabinet Secretary John Mbadi show four major points of contention between KRA and NG-CDF managers and the Board. According to the documents, KRA is demanding Sh2.4 billion from 288 constituencies, with some arrears dating back to August 2020. The total includes old debts from 2020 to August 2022 and current liabilities from September 2022 to October 2025.

The breakdown lists Sh1.4 billion under Income Tax–Pay As You Earn, Sh506 million in Income Withholding Tax, and Sh460 million in Value Added Tax. Constituencies highlighted by KRA include West Mugirango (Sh100 million), Kitui Rural (Sh77.9 million), Homa Bay Town (Sh749,000), Suba South (Sh636,000), and Molo (Sh386,000), among others. Twenty-one constituencies have already submitted formal objections to the authority.

The dispute revolves around four main issues: the prescribed tax assessment period, the appointment of withholding agents within the Fund, the basis for calculating arrears, and the audit methodology used.

NG-CDF questions the legality of tax assessments for periods exceeding the five-year limit set out in Section 29(5) of the Tax Procedures Act (TPA). The Fund also referenced the Uriri CDF vs KRA case at the Tax Appeals Tribunal, which ruled in KRA’s favour but is currently under appeal at the High Court.

KRA, however, argues that Section 31(4)(a) of the TPA allows assessments beyond five years in cases of fraud or neglect. The NG-CDF Board further contends that since CDFs were formally designated as withholding agents only in August 2018, tax liability should only apply from that date. KRA dismissed this position, insisting that tax obligations exist regardless of formal appointment.

NG-CDF managers and the Board told the committee that the arrears were issued without a clear explanation of how the amounts were calculated. KRA rejected this claim, maintaining that taxes legally due remain enforceable under Sections 73(3) of the Income Tax Act and 29 of the TPA, which allow the authority to issue default assessments when taxpayers fail to file returns.

Concerns were also raised over the accuracy of the assessments. NG-CDF argued that KRA relied solely on financial statements that do not accurately reflect project implementation timelines and questioned the taxation of the entire amount allocated for committee expenses without accounting for allowable deductions.

Turkana South MP John Ariko criticised KRA’s method, saying, “I have worked in this Fund. In others, a member of the Fund’s committee spends Sh5,000 as transport to get to the meeting point, yet this is the amount he gets as allowance. What is KRA taxing?”

KRA responded that its assessments are based on multiple documents, not just financial statements, and that the specific basis for each assessment is included in the notice issued to taxpayers. It noted that when requested records are not provided during compliance checks, the authority relies on available financial statements, as was the case in the NG-CDF tax reviews. KRA also emphasised that taxpayers disputing assessments can file objections and submit additional documentation through the legal process.

The debate divided committee members. Soy MP David Kiplagat called on the Treasury to intervene, saying, “We have bailed out entities like Kenya Airways before. Probably you can consider doing the same in this case.”

Homa Bay Town MP Peter Kaluma opposed intervention, insisting, “We just need to pay KRA what we owe it, not a penny more, not a penny less.”

The dispute spilt onto the House floor last month when Mwingi Central MP Gideon Mulyungi raised concerns that NG-CDF managers had received letters from KRA directing them to settle the arrears.

Mulyungi, who chairs the Decentralised Funds Accounts Committee, noted that many constituencies have contested the figures and warned that unless the matter is resolved urgently, operations in numerous constituencies could be crippled.

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