Parliament has written to the Court of Appeal over the delay in the hearing of a case challenging tax waivers granted to Japanese workers and companies.
In a letter to the deputy registrar of the appellate court, Parliament noted that a suspension of the judgment quashing Section 13 of the Income Tax Act for six months, will lapse this month yet the appeal has not been heard.
The High Court had in February last year declared the section unconstitutional, stating that then-Treasury Cabinet Secretary Ukur Yatani had no powers to grant the waiver.
“The orders are set to lapse on 19th June, 2024 yet the appeal has not been heard and determined, which may have the following ripple effects,” Andrew Emacar, who represents Parliament said in the letter.
Mr Emacar said one of two effects was Japanese consultants, companies and employees would be forced to pay income tax, thus breaching one of the conditions precedent to the grants extended to Kenya by Japan.
The other was that all applications for exemption or waiver of tax under the different statutes, which run into hundreds in a day, have to undergo public participation.
High Court judge Dennis Magare had ruled that exemption or waiver of tax can only be granted by Parliament through legislation and after the same is passed as a money bill as provided in the Constitution, and after public participation.
The judge also quashed Section 13(2) of the Income Tax Act, saying it is unconstitutional to the extent that it authorises income tax waivers through a notice in the gazette and for specified persons without regard to Article 210 of the Constitution.
Mr Yatani had exempted income tax for businesses, consultants and workers earned from 15 projects funded by Japanese companies valued at Sh328 billion.
In the appeal, Parliament and Treasury argued that following the quashing of the section, there is no legal framework for tax exemption, yet Article 210 of the Constitution envisages a scenario where one may be exempted from paying taxes.
The court heard that without the exemption, there is bound to be a level of apathy, especially among investors such as those under the Japan International Cooperation Agency (Jica) programme, who ventured into investment in the country following the waiver.
According to the Treasury, the exemptions were granted under a contract between the Kenyan and Japanese governments. Revising the terms and imposing taxes after they had already started the projects in Kenya, the Treasury notes would be changing the substantial terms of the contract between the two countries without negotiations, which might lead to stalling of ongoing projects.
Justices Daniel Musinga, Asike Makhandia and Mumbi Ngugi suspended the decision for six months from December 19, pending the hearing of the appeal.
“In the circumstances, it seems to us that given the far-reaching nature and enormity of the declarations and orders issued by the trial court, an order staying the coming into effect of the declarations of invalidity of the impugned Legal Notice and unconstitutionality of Section 13 of the Income Tax Act is merited,” the judges said.
