McCauley Wycliff
Member
The High Court has faulted the Kenya Revenue Authority (KRA) for stopping owners, CEOs and other top managers of tax-evading companies from flying out of the country.
Justice James Makau found that the KRA erred in restricting executives and business owners from travelling abroad through bans for unlimited period, failing to state demanded tax and not offering the suspects a chance to defend themselves ahead of issuing the travel restrictions.
The judge reckons that the travel restriction should not be a blanket ban, especially on occasions where the taxman has failed to disclose the amount of tax due.
The KRA has powers to issue departure prohibition orders when they have reasonable grounds to believe that persons labelled “tax representatives” may leave Kenya without paying tax due under their name or in a company associated with them.
The “tax representatives” of a company include the CEO, managing director, company secretary, treasurer, trustee, resident director or similar officer of the company acting or purporting to act in such a position.
A number of executives and directors have felt the force of the KRA’s travel bans over tax disputes besides other penalties like asset freeze and deactivation of Personal Identification Numbers (PINs).
Justice Makau made the decision in a petition filed by Hassan Adan Bare, a director of City Gas East Africa Limited, a company that deals in import, export of bulk liquefied petroleum gas.
He faulted the KRA for not giving Mr Bare the opportunity to be heard, before issuing the order. The judge said in Mr Bare’s case, his address was also missing and most importantly, the amount of tax payable had not been stated.
“The drafters of the Tax Procedures Act must have been alive to the fact that the 1st Respondent [KRA] would be tempted to abuse its powers under the Act and the reason why certain mandatory recruitments were provided for with respect to a Departure Prohibition Order,” the judge observed.
According to the judge, the ban issued to Mr Bare was open-ended because the KRA failed to disclose how much the company owed the taxman.
“If such powers are not checked this would amount to confining the Petitioner in the country and will result in him being unable to attend to his business interest spanning the African region or elsewhere,” he said.
“In the instant Petition it is clear that the decision to issue Departure Prohibition Order against the Petitioner was made before the 1st Respondent [KRA] determined whether there was any tax due from him and if so how much.”
The KRA defended its action, saying before the departure prohibition order is issued, there has to be investigations on tax evasion and reasonable grounds to believe that a taxpayer may not pay tax.
In Mr Bare’s case, the court ruled that the KRA violated his rights and directed the taxman to pay him Sh3 million for damages. The authority has in recent months engaged in an aggressive crackdown on rich individuals and companies in the race to grow tax collections, netting thousands of tax cheats and evaders. Stiff measures contained in the Tax Procedures Act of 2015 also allow the taxman to collect duty directly from suppliers and bankers of defaulters and prosecute those in arrears.
The taxman has been investigating rich people’s sources of income and their expenditure against their tax remittances.
The KRA’s enforcement unit has been using various databases to pursue suspected tax cheats, among them bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority (KCAA), which reveals individuals who own assets such as helicopters.