Kenya’s High Court has invalidated income tax exemptions granted to Japanese workers and companies on 15 projects valued at KES 328bn ($3bn) in 2021.
The court ruled that the decision was unconstitutional, as the Treasury Secretary has no such powers. The exemption of income tax for businesses and workers can only be granted by Parliament through legislation and after the same is passed as a money bill provided in the constitution and after public participation.
The judge 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.
The case was filed by Eliud Karanja Matindi, who argued that the waiver must follow the legal route of legislation. The Treasury had defended the decision saying the former Treasury CS, Ukur Yatani, had powers under section 13(2) of the Income-tax Act to issue exemptions from income tax, or exempt income, which accrued in or derived from Kenya to the extent specified through a notice in the gazette.
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The CS said the decision was informed by negotiations and agreements pre-existing in all Japanese government financing. The notice contained 16 agreements from 2007 to September 2020. The matter was discussed by Parliament and adopted in May 2021.
The judge said the constitution requires that there shall be a public record of each waiver and the reason for the same and shall be reported. No tax or licensing fees may be imposed, waived or varied except as legislation provides. He added that whereas the said section gives the power to exempt income or a class of income, it does not give the power to exempt people or a class of people.
The tax exemptions had been granted to Japanese employees, companies and consultants involved in several projects. The Japanese projects that have benefited from the tax relief include the Olkaria V Geothermal Power Development Project which cost KES 66.9bn, the first phase of the KES 38.2bn Mombasa Special Economic Zone Development Project, the first and second phases of the Mombasa Port Area Road Development Project which cost KES 29bn, the first phase of the Mombasa Port Development Project (KES 22bn), the KES 18.2bn power transmission line from Lessos to Kisumu, and the Mwea Irrigation Development Project, with the country having spent KES 13.2bn on the farming project.
The judge said the fact that Kenyans are highly taxed, subjecting working Kenyans to those Japanese companies and projects to tax and have Japanese workers from janitors to CEOs, walk home tax-free defeats equal pay for equal work. Such blanket exemptions of nationals of one state reek of economic apartheid and are not reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom.