Employers Seek Clarification from KRA Amid Tax Collection Confusion

The Federation of Kenya Employers (FKE) has recently called for urgent clarification from the Kenya Revenue Authority (KRA) in light of mounting confusion over tax collection procedures. This appeal follows the Court of Appeal’s recent nullification of the Finance Act 2023, which has created a state of uncertainty among Kenyan businesses as they prepare their payrolls for tax remittance.

In a detailed letter addressed to KRA, FKE Executive Director Jacqueline Mugo highlighted the pressing issue facing their members. The Finance Act 2023 had introduced significant changes to the tax system, including new salary bands for higher income earners and the mandatory use of the Electronic Tax Invoice Management System (eTIMS). However, the Court of Appeal deemed these measures unconstitutional, leaving businesses in a state of limbo as they navigate the new tax landscape.

The Court of Appeal’s ruling, which declared the Finance Act 2023 and its associated revenue-raising measures as null and void, has had a profound impact on the tax collection framework. The ruling not only overturned the increased tax rates for higher income brackets but also eliminated the requirement for businesses to issue eTIMS invoices for claiming deductible expenses. This decision has created a complex situation where businesses are unsure of how to comply with tax regulations and avoid potential penalties.

The lack of clear communication from KRA regarding the implementation of the Court’s ruling has exacerbated the confusion. As of August 9, 2024, the deadline for the remittance of July 2024 taxes looms large, yet many employers are still waiting for guidance on how to proceed. The delay in re-configuring KRA’s tax systems to align with the Court’s decision has left many companies at risk of facing penalties for non-compliance.

In her letter, Jacqueline Mugo underscored the urgency of the situation, emphasizing the need for KRA to provide immediate clarification on tax payment procedures. “The purpose of this open letter is to ask KRA to urgently clarify to employers and all taxpayers in Kenya how they should pay their taxes given the Court of Appeal judgment,” Mugo wrote. She further highlighted the potential financial repercussions for businesses, stating that members could face significant penalties if KRA fails to address these concerns promptly.

The confusion has also been compounded by the government’s response to the Court of Appeal’s ruling. The Solicitor General’s office has filed an appeal against the decision, seeking stay orders, which were subsequently denied. The matter is now set to be heard by the Supreme Court, adding another layer of complexity to an already challenging situation for Kenyan businesses.

As the Supreme Court prepares to hear the case, businesses and employers are left grappling with an uncertain tax environment. The need for clear and timely guidance from KRA is paramount to ensure that companies can meet their tax obligations without incurring unnecessary penalties.

The situation highlights the broader issue of how legal and administrative changes can significantly impact the business environment. It underscores the importance of effective communication between tax authorities and the business community to prevent disruptions and ensure compliance with evolving regulations.

In conclusion, the ongoing confusion over tax collection procedures following the Court of Appeal’s nullification of the Finance Act 2023 has placed Kenyan employers in a difficult position. The urgent need for clarification from KRA is crucial to resolving these issues and enabling businesses to fulfill their tax obligations in accordance with the new legal framework. As the Supreme Court prepares to review the case, the hope is that a swift resolution will provide much-needed clarity and stability for the Kenyan business community.