Uproar as KRA Charges VAT on Taxes Collected by County Governments

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The Council of Governors (CoG)has protested a move by the Kenya Revenue Authority (KRA) to impose a Value Added Tax (VAT) on county governments' revenue sources. 

County governments raise their own revenues through taxes which include levies, land rates, and licenses, among others. This is separate from the allocation they receive from the exchequer. 

The CoG argues that this move by KRA is unconstitutional and intrudes on the powers of counties to manage their finances.

CoG Cites Constitutional Violations

CoG Chairperson Anne Waiguru, claims that KRA's demand contradicts Article 6 (2) of the Constitution, which outlines the separation of powers between the national and county governments. 

Additionally, she highlights Article 209, which specifies the taxes and charges each level of government can impose.

Waiguru maintains that VAT on county revenue, termed Own Source Revenue (OSR), is unconstitutional and intrudes on the powers to impose taxes and duties of the Counties.

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VAT Not Applicable to County Services

The CoG further argues that VAT, a consumption tax on the value added at each production and distribution stage, doesn't apply to county revenue generation. 

Waiguru explained that OSR does not necessarily correspond with a service provided and doesn't fall within the typical VAT framework.

She supported this argument by pointing out that county finance laws don't include VAT on their revenue streams. Therefore, according to the CoG, there's no justification for counties to collect VAT on their OSR and remit it to KRA.

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Open to Discussion but Prepared for Legal Action

While rejecting KRA's demands, the CoG expresses willingness to engage in discussions to find a solution. However, Waiguru warns that if KRA persists with this unconstitutionality, the CoG will be forced to move to court. 

“We demand that KRA ceases forthwith from making any such demands for VAT

on Counties’ revenue sources as the same is bereft of any legal backing. The Council is however open to discussions geared towards reaching an amicable solution

on this issue. 

“If no action is taken and this unconstitutionality continues, we will be left with no option but to seek legal redress without any further reference to you,” Waiguru’s letter to KRA read in part. 

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