Court halt Sh328billion tax waivers granted to Japanese employees
The High Court has revoked income tax waivers granted to Japanese workers and companies, terming the 2021 decision by the then National Treasury Cabinet Secretary Ukur Yatani unconstitutional.
The former CS had exempted income tax for businesses and workers earned from 15 projects valued at Sh328billion.
Justice Dennis Magare, however, said the former CS had no such powers as exemption or waiver of tax income can only be granted by Parliament through legislation and after the same is passed as a money bill provided in the constitution and after public participation.
The judge also quashed section 13(2) of the Income Tax Act, ruling it as unconstitutional as it authorises income tax waivers for specified persons through a gazette notice without regard to Article 210 of the constitution.
“Such blanket exemptions of nationals of one state reek of economic apartheid and are not reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom,” the judge said.
The court said that the fact that Kenyans are highly taxed while Japanese workers from janitors to CEOs, walk home tax-free is unfair.
The case was filed by Eliud Karanja Matindi who argued that the CS had no powers and that the waiver should follow the legal process.
Through a notice on May 2021, Yatani directed that Japanese employees, companies and consultants involved in several were exempted from paying income tax.
On his side, the CS said he instituted exemptions through bilateral agreements with Japan and exempted them from Income tax.
The matter had been discussed by Parliament and adopted in May 2021.
However, the Treasury defended the decision saying that the CS had authority under section 13(2) of the Income-tax Act to issue exemptions from income tax, or exempt income, which accrued in or derived from Kenya to the extent specified through a notice in the gazette.
The CS said the decision was informed by negotiations and agreements preexisting in all Japanese government financing.
The judge said the constitution requires that there shall be a public record of each waiver and the reason for the same and shall be reported and that no tax or licensing fees may be imposed, waived or varied except as legislation provides.
He added that whereas the said section gives the power to exempt income or a class of income, it does not give the power to exempt people or a class of people.
“For taxation to be fair, reasonable and proportionate, it has to have an element of neutrality and should be able to apply without discrimination unless it is for clearance of historical injustices and marginalisation,” he said.
Some of the projects that had been granted tax relief include Olkaria V Geothermal Power Development Project which cost Sh66.9 billion.
Others include phase one of the Sh38.2 billion Mombasa Special Economic Zone Development Project, phase one and phase two of the Mombasa Port Area Road Development Project which cost Sh29 billion, the first phase of the Mombasa Port Development Project (Sh22 billion).
Mwea Irrigation Development Project also adds the list with the country having spent Sh13.2 billion on the farming project.
