NAIROBI, Kenya, Jun 11 – Governors are calling on the Kenya Revenue Authority (KRA) to stop imposing Value Added Tax (VAT) on county governments’ revenue sources, along with the associated interest and penalties.
The Council of Governors (CoG) has labeled the KRA’s demands as unlawful, arguing that they violate the principles of Article 6(2) of the Constitution.
The CoG highlighted that Article 209 of the Constitution delineates the taxes and charges that each level of government can impose.
“We, therefore, find the demands by KRA on imposition of VAT on Counties’ Own Source Revenue (OSR) unconstitutional and an encroachment on the powers to impose taxes and duties of the Counties in contravention to Article 209 (3) and (4) of the Constitution,” said COG Chairperson Anne Waiguru said.
Waiguru further noted that according to paragraph 9 of Part II of the First Schedule of the VAT Act, 2013, as read with the Finance Act, 2023, services provided by counties in the performance of their functions, as outlined in the Fourth Schedule of the Constitution, are exempt from VAT.
Additionally, she asserted that Kenya’s constitutional framework does not intend for the National Government to impose taxes on revenues raised by county governments.
She clarified that VAT is a consumption tax levied on the value added at each stage of a product’s production and distribution.
“Raising own source revenue by counties in its strict sense does not necessarily correspond with a service provided, neither does it fall under any stage of production,” she explained.
Waiguru also pointed out that all finance laws enacted by counties do not impose VAT on their revenue streams and sources as contemplated by the KRA.
“Therefore, there is no logic for counties to charge VAT on their own source revenue or to remit the same to KRA,” she added.
The CoG chairperson expressed openness to discussions aimed at finding an amicable solution to this issue.
However, she warned that if the situation persists, the CoG would be compelled to take legal action against the KRA.
“We wish to state that if no action is taken and this unconstitutionality continues, we will be left with no option but seek legal redress without any further reference to you,” she said.
