Wednesday, August 17, 2011

Why MPs won't pay tax after all



By Standard Team
Cabinet has opened a small window through which Members of Parliament protesting at paying taxes on their full earnings will escape Kenya Revenue Authority’s monthly levy.
This was by way of a decision at Tuesday’s session that it was unfair to subject the current crop of MPs to new taxation levels in the middle of their parliamentary term when they had committed their earnings to other pressing matters such as loans and mortgages. Despite President Kibaki, Prime Minister Raila Odinga and Vice- President Kalonzo Musyoka having paid taxes, during the meeting they allowed for the issue to be re-examined.
MPs in a past Parliamentary session. They have vigorously protested at paying taxes. Photo: File/Standard
Sources in the session revealed the Cabinet discussed a political deal in which MPs could be cushioned from the harsh tax penalties until the end of the current term of Parliament.
The deal is anchored onto the pre-constitutional referendum assurance to the MPs by Attorney General Amos Wako, the PM, and the President that the law cannot be applied retrospectively, and if the proposed law was passed, only the next crop of MPs would pay tax. But the two leaders have since changed position, and the AG as well, with the thrust of the new argument being that the Constitution is the supreme law and supersedes all other legislations and agreements.
Paying taxes
In return for paying tax, the MPs who have been threatening to sabotage Government operations by throwing out Financeminister Uhuru Kenyatta’s June Budget, sought a salary increment that would ensure when taxed, their earnings would remain at the current level.
"It is true the issue came up and some ministers demanded to know why the Government appeared to have reneged on written commitment to exempt MPs from paying taxes," revealed a source.
Those to be spared the tax burden are all 224 members – 210 elected, 12 nominated as well as the Speaker and the Clerk of the National Assembly.
KRA had given MPs a 30-day ultimatum to pay up or face sanctions, such as seizure and auctioning of their property.
Further to this threat, the MPs were resisting taxation against the background of a growing trend in public appointments that applicants must produce certificates of clearance from, among others, State institutions including KRA and the Kenya Anti-Corruption Commission.
According to KRA, MPs were supposed to pay tax from the time the Constitution was promulgated in August last year.
Speaker Kenneth Marende had several times indicated that MPs should not pay tax because they are deducted on their basic salary, which is Sh200, 000. On average, however, MPs earn about Sh800, 000 per month – including allowances.
Last week, MPs rejected KRA ultimatum, reprimanded Kalonzo, who is the Leader of Government Business in the House, for bowing to taxman’s pressure, and formed a 15-member committee to renegotiate tax on their incomes.
The 15-man committee comprises of Deputy Prime Minister and Minister for Finance Uhuru Kenyatta, Cabinet ministers John Michuki, Naomi Shaaban, James Orengo and Dalmas Otieno.
Others are Assistant Ministers Margaret Kamar, Joseph Nkaissery and David Musila, Government Chief Whip Jakoyo Midiwo. Three MPs – Isaac Ruto, Rachael Shebesh, and Kiema Kilonzo – will represent backbenchers.
This took place at the Speaker’s Kamukunji, last week during which the members criticised those who have paid up their taxes, in line with the provisions of the Constitution.
The MPs also berated their colleagues, who were paying tax even before the new Constitution made it mandatory.
It is also not clear what would happen to those who had paid up taxes, among them the President, the PM, and the VP, among others.
During the meeting yesterday at State House, chaired by the President Kibaki and attended by the PM and the VP, it is reported a framework to deal with the issues was discussed.
Details remained scanty, as ministers were secretive when reached for comment, arguing they were under oath not to divulge secrets of Cabinet discussions.
Higher earnings
Several ministers who requested not to be named laughed off the questions when reached for comment. "Who told you that? You know our phones are tapped and monitored. You cannot quote me, but there were discussions on the issue," said a minister.
It is understood in the deal, an alternative discussed was giving MPs higher earnings to make them ‘comfortable’ should KRA finally tax them.
The MPs had lobbied hard using influential ministers and voicing their concerns through Marende to have the tax issue resolved.
"It was like robbing the left hand to give to the right hand, but the issue still remained sensitive. No conclusive deal was reached," said another minister.
Among the discussions tabled at the Cabinet, sources said, would require the Treasury and Parliament to meet with stakeholders to find an agreeable position.
Part of the arguments was that shelving taxation of allowances for MPs would motivate them to move with speed to pass Bills critical to the implementation of the Constitution.
There has been public outrage against MPs resisting taxation, with pressure piling on them to pay tax like all other Kenyans.
Last year, Wako wrote twice to the House Speaker advising that MPs would not pay tax in their current term. The chief government legal 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 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 they were to be taxed.
Wako said in one of the letters that the issue of taxation was not "as clear-cut as it looks" and argued sections of the old Constitution dealing with the Executive and National Accord should remain in force until after the next General Election, including MPs’ salaries.
In the letters that he described as "my opinion", Wako said requirements in the new Constitution that would have made it mandatory for MPs to pay tax would be suspended until after next the General Election due next year.
But he admitted that under the new Constitution, "no law may exclude or authorise the exclusion of a State officer from payment of tax".
Justice Minister Mutula Kilonzo has said the use of the word "may" is discretionary, meaning that MPs could be exempted from paying taxes.
Marende has questioned the move to tax MPs, citing Wako’s letters. He also said KRA had given similar assurances in writing.

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