Judiciary And Treasury Are At odds On A Tax Dispute Deposit Plan

A Supreme Court judgment issued earlier this year prohibiting the imposition of conditions before a matter is heard conflicts with a suggestion by the Treasury that businesses and individuals deposit 20% of disputed tax before submitting it to the Kenya Revenue Authority (KRA).

In an effort to promote out-of-court settlements in response to complaints that the KRA is unable to collect billions while lawsuits take years to be resolved, the Finance Bill 2023 proposes amendments to the Tax Procedure Act that would require parties to disputes with the KRA to deposit a portion of the amount.

The Finance Bill stipulated, in part, that parties who are not the Commissioner must deposit with the Commissioner an amount equal to 20% of the contested tax before submitting an appeal. The plan states that if the court rules in the taxpayer’s favor, the KRA must credit the money or security within 30 days of the appeal’s verdict.

The proposal, however, violates a Supreme Court judgment issued on February 17, 2023 by Deputy Chief Justice Philomena Mwilu prohibiting such preconditions on lawsuits being heard in court. After the CBK requested that Westmont Holdings provide security for costs in the amount of Sh. 87,620,000.00 on the grounds that it had been granted costs by the High Court, the appeal was filed. The Court of Appeal granted CBK’s request and instructed the appellant to deposit Sh 20,000,000 as cost security; else, the appeal would be dismissed.

Affirming that the order for security for costs violated several constitutional provisions, including Articles 48 (access to justice), 50 (right to a fair hearing), 159 (duty of the court to disregard technicalities in dispensing justice), and 259 (duty of the court to advance the purpose, values, and principles of the Constitution and to advance the interests of the people), the Westmont filed the current appeal before the Supreme Court.

The most recent suggestion in the Finance Bill 2023 is a decrease from the 50% deposit that the former Treasury Cabinet Secretary Ukur Yatani had suggested last year. However, MPs rejected the 50% deposit proposal, claiming it would hurt businesses. Courts have established the amount to be provided as a deposit or bank guarantee after determining if KRA’s demands for security are justified over the years.

However, due to its predicted effects on the cash flows of companies embroiled in the tax warfare with the KRA, the idea is likely to encounter pushback. To reduce obstacles impeding efforts to reclaim taxes, the KRA has backed alternative dispute resolution.


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