KRA embroiled in Sh1 billion tussle over rental tax system

The Kenya Revenue Authority is embroiled in a Sh1 billion row with landlords over a new system meant to help net rental income tax cheats.

The taxman, who is under pressure to meet the ambitious Sh1 trillion tax revenue target set by the government this year, has in recent days increased focus on netting more taxes from landlords after income from this segment fell fivefold to about Sh1 billion from over Sh5 billion by 2009.

At the centre of the row is the recently appointed commissioner of domestic taxes, Ms Alice Owuor, three deputy commissioners, and an employee, Mr Samson Ngengi.

The three deputy commissioners are Mr Daniel Kagira — deputy commissioner real estate, Mr Humphrey Mugambi — deputy commissioner in charge of the business automation office, and Mr Samuel Aboge — deputy commissioner, taxpayer services.

The intrigues started last month when KRA advertised bids for the development and supply of an information system linking a database of properties to owners and tax compliance records — making it easy to single out landlords who do not pay taxes.

Sources familiar with the deal said the tender appeared skewed towards a firm that deals with such technologies and which is connected to a sitting member of Parliament.

The politician, who is also a well-connected businessman, is also understood to have been involved in the pilot process that the taxman has been running, giving him access to insider information. The company was one of 15 that submitted their bids on Thursday.

But the bigger question is why KRA is calling for supply of a new system while its employee — Mr Ngengi — last year developed a similar system that has won a global award.

According to its website, the KRA commissioner-general, Mr John Njiraini, led a high profile delegation to Santiago in Chile in April to receive an award for the GEOCRIS innovation at a global meeting for taxmen.

At the 46th Inter-American Centre of Tax Administrations (CIAT) General Assembly that took place from April 23 to 26 this year, KRA was recognised for developing the GEOCRIS innovation — a real estate geo-mapping system.

The innovation was cited as one of the three leading systems by tax administrations in the past year. Kenya was honoured alongside Brazil and Argentina.

The CIAT assembly attracts taxmen from around the globe to foster international cooperation and the exchange of experiences and best practices.

Insider information shows that KRA plans to spend at least Sh1 billion over the next three years to roll out the system, billed as crucial in helping the taxman meet the ambitious Sh1 trillion tax revenue target set by Treasury this year.

In an earlier interview with Smart Company, KRA demonstrated how the GEOCRIS innovation works, with the management sounding optimistic that the new system would help identify tax cheats who have avoided remitting rental income taxes for years.

This appears to have now been reversed, with an external system being preferred.

The bare-knuckle fight to have the system procured afresh has seen Mr Ngengi — who is in his third year as an employee of KRA — edged out of the KRA head office through a transfer to Mombasa.

The letter dated October 26, 2012 does not explain why he was transferred. KRA refused to give its side of the story on the circumstances that necessitated the transfer that came just two months after Mr Ngengi sought redress.

“We wish to inform you that you have been transferred from Nairobi to Mombasa North with immediate effect,” read the transfer letter. “Please arrange to report to the station manager, Mombasa North Station, for further instructions… not later than November 26, 2012.”

It appears senior people at KRA were uncomfortable with Mr Ngengi’s continued presence, perhaps fearing that he would scuttle their dealings by possibly reporting the matter to Mr Njiraini.

This tension was captured in email correspondence seen by Smart Company between the three deputy commissioners.

The email was authored by Mr Kagira, inviting Mr Aboge and Mr Mugambi for a meeting to plot how to push Mr Ngengi out of the project.

“I propose that we meet in my office on 29th floor to avoid raising unnecessary concerns from parties like Mr Ngengi. (sic) Am told he is already aware that KRA has won an award based on the work submitted to CIAT based on what we were working jointly with him last Nov/Dec 2011. (sic) Can imagine that he is monitoring every step we are taking. I expect him to raise the issue with the CG (commissioner-general) next Monday,” Mr Kagira wrote.

Contacted, KRA declined to comment on the story on grounds that the matter was under legal process despite records showing that it was stone-walling the arbitration process.

“Our legal team has advised that we do not comment on this matter, given that it is before court,” KRA spokesman Kennedy Onyonyi said. KRA also did not respond to a query on why it chose to call or advertise for tenders for the project.

Investigations by Smart Company reveal evidence of a conspiracy among top KRA executives to hijack the innovation.

More than six months before it was officially advertised for tender, insiders at KRA were talking to an external vendor to hand in a proposal for the same solution, giving the firm a head start.

“I am happy that there are firms out there that can provide the solution we are seeking. However, I have reviewed the proposal but it appears a KRA insider has coached this particular firm on exactly what KRA wants,” read another email from Mr Kagira to Mr Mugambi and Mr Aboge dated March 23, 2012.

He noted that most of the data contained in the proposal was basically what was in KRA internal records. “It looks like someone has sold the idea to them,” Mr Kagira added. This correspondence was copied to Ms Owuor, the commissioner of domestic taxes.

But on the same day, Mr Kagira wrote a separate email that reveals the plot to ensure that the innovator is thrown out of the system even as his ideas are used.

“I request that as much as possible, let’s come up with our own customised paper to avoid unnecessary conflicts with Mr Ngengi. We can borrow ideas from his papers, but we re-write them in our own words,” he wrote.

Mr Kagira did not respond to our emails asking why he was at the centre of coming up with a parallel proposal on the innovation implemented by Mr Ngengi, but it is understood that he left the communications office at KRA to handle the matter.

In April, he called the other two deputy commissioners for a planning meeting which was to be kept secret to avoid arousing interest on Mr Ngengi.

This invite was not extended to Ms Owuor and it was not possible to establish whether she was aware of the development or was kept in the dark about what was going on behind the scenes.

KRA is the only agency mandated to collect tax revenue on behalf of the government. This means that if the innovation is to be used in Kenya, then it must be implemented by the tax agency.

“This matter is now at a sensitive stage and I do not wish to discuss it with the media at this point,” Ms Cathy Mputhia, an advocate with Muthoga Gaturu, the law firm representing Mr Ngengi, said.

But a claim letter from her firm to KRA seen by Smart Company is seeking compensation for her client (Mr Ngengi) for using the system.

“It is our client’s assertion that Kenya Revenue Authority is in gross breach of section 98 of the Act. Our client is also entitled to begin receiving remuneration concerning the system,” the letter addressed to the KRA commissioner-general and dated August 29, 2012, reads.

According to the letter, KRA has used the technovation and communicated it to a third party, although the law states that this entitles the technovator to “a remuneration which shall be fixed by mutual agreement between the technovator and the enterprise”.

This is because KRA went ahead to submit the system to an international innovation fair, where it won an award. It has since publicised the award, even on its website.

Mr Ngengi’s lawyers are also demanding that KRA issue a technovation certificate to their client and stop the use of GEOCRIS or any other identical system, whether going with a similar name or not.

“Our client was the first within Kenya Revenue Authority to come up with this technovation. According to the Act, the name by which the technovation is referred does not matter, what matters is the system created and its workings.

“Therefore, our client demands an immediate cessation of development of either GEOCRIS or an identical system until his rights are established,” the demand letter reads.

But this has not stopped the taxman from going ahead to start the process to develop a similar system.