Stop VAT Taxes Or Else- Governors to KRA

The Council of Governors has demanded that the Kenya Revenue Authority (KRA) puts a stop to its persistent demands for Value Added Tax (VAT) on various counties' revenue sources.

The CoG, led by chairperson and Kirinyaga Governor, Anne Waiguru, made this demand in a statement dated Monday, June 10, as it raised serious concerns regarding the demands on the revenue sources along with associated interest and penalties.

The governors deemed the demands unwarranted and saw them as an affront to the principles enshrined in Article 6(2) of the Constitution.

According to Article 209 of the Constitution, the authority to impose taxes and charges is delineated between the national and county governments. 

"We, therefore, find the demands by KRA on imposition of VAT on Counties’ Own Source Revenue (OSR) unconstitutional and an encroachment on the powers to impose taxes and duties of the Counties in contravention to Article 209 (3) and (4) of the Constitution.

"Further, pursuant to paragraph 9 of Part II of the First Schedule of the VAT Act, 2013 as read with the Finance Act, 2023, services provided by Counties in the performance of their functions as set out in the Fourth Schedule of the Constitution are exempt and therefore not subject to VAT. It is on this premise that we find that the KRA has no basis for these demands," the statement sent to newsrooms read in part.

The Council maintained that the national government is not constitutionally empowered to impose taxes on revenue raised by county governments and that VAT, being a consumption tax, is levied on the value added at each stage of a product’s production and distribution. 

However, they found that the concept of counties raising their own source revenue does not align with the provision of a service or any stage of production, which further negates the rationale for VAT imposition.

"Furthermore, all Finance laws enacted by counties do not load the revenue streams and sources with VAT as contemplated by KRA.

"Therefore, there is no logic at all for counties to charge VAT on their own source revenue or to remit the same to KRA," added the statement.

In light of this, the Council of Governors demands that the KRA immediately cease its demands for VAT on county revenues, citing the lack of legal foundation for such claims.

However, the Council noted that it remains open to discussions aimed at finding an amicable resolution to the issue.

"We wish to state that if no action is taken and this unconstitutionality continues, we will be left with no option but to seek legal redress without any further reference to you," CoG warned.

KRA was yet to respond to the governors' statement by the time of publishing this story.