Exclusive: Kenyans to pay ministers’ huge tax arrears

By David Ochami
It is official: You the taxpayer will now dig deeper into your pockets to clear tax arrears for ministers and assistant ministers that have accumulated since September last year.
The taxpayer will also shoulder interest and other costs arising from the unremitted taxes from September last year, to June this year, according circulars seen by The Standard On Saturday.
It has now been decided that all taxes in respect of these officials’ allowances "will be settled by the Government" and that Permanent Secretaries are now required to "refund any amounts that may have been recovered (from them) through the payroll".
Besides this new tax burden Kenyans will shoulder the ministers’ and assistant ministers’ taxes from June this year, to December 2012, giving clear signal the next General Election may not be held in August next year as expected.

President Kibaki chairs a past Cabinet meeting at State House Nairobi. It has now been decided all taxes in respect of ministers’ allowances will be settled by the Government. [PHOTO: FILE/STANDARD]

The controversial exemption is contained in two circulars from the Head of the Public Service and Secretary to the Cabinet, Francis Muthaura, to Permanent Secretaries as accounting officers. The circulars are copied to the Attorney General, ministers, assistant ministers, the Auditor General, and Commissioner General of the Kenya Revenue Authority (KRA).
Early this week, the Cabinet agreed to exempt the current Members of Parliament, including the Executive, the Speaker, and Clerk of the National Assembly from paying tax on their allowances.
Last week, an informal session of Parliament formed a 15-member committee to explore how to skirt around constitutional provisions barring such tax exemptions.
The front and backbench are largely united in rejecting the tax obligations under the new Constitution. They claim transitional schedules in the new order preserve their tax exemptions through the National Assembly Remuneration Act, and the old Constitution under which they were elected in 2007.
Legal opinionThey also accuse KRA, the President, Prime Minister, and the Vice-President of reneging on a pre-2010 constitutional referendum legal opinion by the Attorney General, which they interpret to mean they are exempt from tax on allowances or beyond their Sh200,000 basic salary.
Last month the KRA reportedly receipted taxes on ministers and assistant ministers’ basic pay and allowances, and issued a 30-day ultimatum to MPs to remit arrears from last year.
Muthaura’s letters do not mention MPs, but indicate that following "exhaustive consultations" front bench will be spared expanded tax burdens.
Says the circular dated August 17 in part: "Following exhaustive consultations, it has been decided that the penalties and interest demanded by the Kenya Revenue Authority on tax arrears from September 2010, to June 2011, as well as taxes for the same period up to December 31, 2012, in respect of ministers’ and assistant ministers’ allowances will be settled by the Government."
Muthaura decrees in the circular that, all monies deducted from ministers and assistant ministers be refunded.
"Accordingly, you are required to stop any further taxation of ministers’ and assistant ministers’ allowances, except ministerial allowance and refund any amounts that may have been recovered through the payroll."
The next day Muthaura wrote to Permanent Secretaries and accounting officers that the taxman should continue to tax ministers’ and assistant ministers’ basic pay.
"Further to this official circular No OP/CAB.2/12A of 17th August, 2011, it is clarified that it is basic salary that will continue to be subjected to taxation" and concluding that all other aspects of the previous day’s circular "remain unchanged."
It is not clear from which account the Government will get the money to pay tax arrears for the front bench or whether the Executive is plotting a similar move to cushion the backbench.
The majority in the backbench owe KRA an average Sh1.9million, accumulated between September last year and June this year.
Backbench MPs have threatened to sabotage implementation of the new Constitution, shoot down the Finance Bill, and paralyse operations of the Government if KRA deducts accumulated taxes.
Before last year referendum AG Amos Wako wrote twice to the House Speaker Kenneth Marende advising that MPs should not pay tax during their current term.
Wako, the chief Government advisor, also said the term ‘tax’ was not defined in the new Constitution.
The two letters were written less than a month before the August 4, 2010, referendum on the Proposed Constitution.
The letters are believed to have influenced a majority of MPs to support the draft, as some had threatened to campaign against the document if their pay was taxed.
Muthaura’s letters say the Government shall underwrite tax arrears for ministers, but the Government does not have any money of its own. It is ultimately the already burdened taxpayers, who have to meet this extra cost at a time of widespread hunger and rising cost of living.