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On taxes, I reiterate that laws must be framed with the payers in mind

Tuesday November 13 2012



Last week, I commented on the whopping Sh5.6 billion judgment which Mr Justice Isaac Lenaola recently slapped on four Coca Cola bottling plants.

This is with regard to a tax dispute where the Kenya Revenue Authority claimed that the four bottlers did not collect excise duty on returnable bottles between the year 2006 and 2009.

I did not comment on the merits of the judgment by Justice Lenaola for two reasons. First, I did not want to break the sub judice rule as I suspected that the matter might end up at the Court of Appeal.

Secondly, I claim no authority on interpreting legal texts. It is not for me to comment on whether the billions of shillings are payable of not.

My comments were restricted to broader policy issues. I happen to believe that tax policy is not just a matter to be left to tax consultants, lawyers and judges. Taxation and tax policy are primarily about economics.

A tax regime that approaches the job on the basis that taxes must be collected at all costs, regardless of likely negative impact to the macro-economy, cannot claim to be pro-growth.

Indeed, the reality is that if you force the four bottling plans to pay the billions of shillings, they will simply close shop and send employees to the streets.

The first person to respond to my article was Commissioner-General John Njiraini, himself.

He candidly disclosed to me how he had, in his previous capacity within KRA, personally negotiated a settlement with the four bottlers in meetings he chaired, pointing out that the final settlement was going to be a paltry figure.

What surprised him, he said, was that after offering the four bottlers what he believed was a fair amount, they decided to trash the deal with no reference to him.

The bottler, he charged, had acted on what he described as “misconceived advice by the Big Four tax consultants”. In the circumstances, KRA had no choice but to reinstate its demands. The bottlers went to court, where they have now lost out.

“If there is anyone to blame for their predicament, it is themselves,” he said, with a touch of asperity. Mr Njiraini added that as a tax authority, KRA was always conscious of the impact of the decisions it makes on the macro-economy.

“We cannot kill the goose that lays the golden egg”, he said. A few days later, KRA’s corporate affairs head, Mr Ken Onyonyi, also wrote to respond to my commentary.

He struck a completely different chord from his boss, coming out sounding overly defensive and seeking to personalise the whole debate.

What does this dispute say about the conduct of tax policy in this country? In my view, the big issue here is lack of clarity and consistency in the application of laws dealing with returnable bottles.

The question of how to treat returnable bottles has been amended too many times and arbitrarily, depending on which Finance Minister was reading the budget.

As we learn in theory, fiscal laws should be as clear and consistent as to put tax consultants and lawyers out of business.

Far from seeking to put tax advisers out of business, we have proceeded as if our fiscal laws were drafted to assure the Big Four of eternal prosperity.

Indeed, it is the Big Four who have benefited from the chronic tinkering with the policy on returnable bottles by the taxman and Finance Ministers.

As a taxman, taxpayer-morale, though intangible, is your most important asset. Tax laws must be framed with the need and convenience of the taxpayer in mind.

My second point is on tax avoidance. No theory can get over the basic truth that unfair taxes inevitably result in the citizenry resorting to avoidance.

The more KRA insists that our international athletes must pay taxes, the more you will see our athletes seeking citizenship of other countries even as they continue training and doing business in Eldoret.

Why are we converting these law-abiding citizens into tax-dodgers?