Over Sh313 billion in taxes stalled by court, tribunal cases - Budget office

The Parliamentary Budget Office (PBO) has disclosed that court cases are hindering the Kenya Revenue Authority (KRA) from collecting Sh313.5 billion in disputed taxes.

This includes 747 cases in the Tax Appeals Tribunal (TAT), holding Sh165.1 billion, and another Sh148.4 billion tied up in 541 active court disputes.

The PBO, which advises Members of Parliament on economic and budgetary policies, said the stalled funds, highlight a trend of taxpayers contesting KRA's tax demands, either over alleged misinterpretation of tax laws or on grounds of error.

“Ongoing legal challenges highlight the complexity and financial impact of unresolved tax disputes, emphasising the need for efficient resolution mechanisms to unlock this significant amount of revenue for the government," it said.

The backlog comes as the KRA faces increasing pressure to meet rising tax targets. Many individuals and businesses argue that high taxation has weakened consumer purchasing power and eroded profits.

Some cases have remained unresolved at the TAT or courts for years, indicating a prolonged resistance to KRA's enforcement.

Adopt a gentler approach

The agency has faced criticism from top officials, including President William Ruto, who in October urged the KRA to adopt a gentler approach.

“Effective revenue collection doesn't need to be unpleasant and demeaning to members of the public,” Ruto said, adding that tax collection can be “courteous, kind, and gentle” while still efficient.

Despite these obstacles, the PBO reported that 2,543 tax cases have been settled, generating Sh71.89 billion in revenue. However, it did not specify the duration the cases had been pending.

In response to the rising disputes, the KRA has increasingly relied on alternative dispute resolution (ADR), introduced in 2015 as a faster option to resolve disagreements before they escalate to the TAT or courts.

However, tax evasion and fraud cases remain outside the ADR’s scope, as they are classified as criminal.

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

The PBO’s report also highlighted KRA’s use of amnesty to encourage compliance. The Finance Act of 2023 allows taxpayers with accumulated interest and penalties as of December last year to devise a repayment plan under an amnesty program.

With a tax target of Sh2.91 trillion for the fiscal year ending June 2025, up from Sh2.54 trillion the previous year, KRA aims to expedite case resolutions and expand its tax base to meet this ambitious goal.

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