There is departure of many people from the country every day. Section 45 of the Tax Procedures Act (2015) addresses all issues about departure prohibition orders. Under Section 45 of the Tax Procedures Act (2015), a departure prohibition order is issued by KRA to the Director-General of the Kenya Citizens and Foreign National Management Services (hereby referred to as Director-General). This is for the taxpayer not to leave the country. Many persons have suffered immensely when KRA has applied this Section 45 as it is.
The assumption of this Section 45 is that there are persons who, because they have current tax debts or anticipated tax debts, will flee the country. Even though this may be true in some cases, this is further from the absolute truth. Many taxpayers have current or anticipated tax debts but will not flee the country. They know no other home but Kenya.
Since 2015 when this Act assented, KRA can confirm how many persons have fled the country because the circumstances warrant a departure prohibition order. In the recent past, this Section 45 has been used not as a deterrent which is the intended purpose, but more to frustrate and punish some particular persons. I will qualify this in this post, but first things first.
When is the order issued?
According to Section 45(1), a departure prohibition order is issued for a person when the Commissioner has reasonable grounds for the belief that the person may leave the country without paying:
- A tax that is or will become payable by the person; or
- A tax will become payable by a company in which the person is a controlling member.
What does this mean?
- The Commissioner issues the order if they have reasonable grounds … but what are reasonable grounds? Without the definition of the term reasonable grounds in the tax law, the Commissioner has the discretion to use whatever grounds are deemed reasonable to issue the departure prohibition order. The law should define the term ‘reasonable grounds’ so that this vagueness in the term ‘reasonable grounds’ is not misused.
2. The order is issued because of an existing or tax debt that will become payable. There are two types of existing tax debts:
- A confirmed tax debt that has been agreed upon between KRA and the taxpayer: this is an existing tax debt.
- A disputed tax debt where the taxpayers have lodged the notice of dispute with KRA. If the tax debt has been disputed, it is not an existing tax debt and is not a ground for issuing the departure prohibition order. There may be chances that there will be no tax debt at all. However, there have been instances where departure prohibition orders have been issued when the tax had been disputed.
Additionally, a debt that will become payable creates a big problem because this tax debt has not been established. Many times, KRA has issued tax assessments with many disputable issues. The taxpayers have explained the disputed issues, and the tax amounts are either substantially brought down, or there is no tax debt.
Hence, issuing a prohibition order based on a tax debt that will become payable is technically wrong and unfair to the taxpayer. Besides, Section 45 does not explain the period within which the anticipated tax debts should be established. This again gives KRA leeway to issue the departure prohibition order and take its time establishing the tax debt.
Section 45 should be applied for established and confirmed tax debts, not unconfirmed tax debts. The law should also set a time limit within which anticipated tax debts should be based, failure to which the orders should not be issued.
The order is issued to a person who owes or will owe the tax debt. The Act is silent about a situation where a person who has a tax debt is already making the tax payments with:
- An agreement with KRA to make tax payments on an installment basis, or
- Without an agreement but is making the tax debt payments.
This means that KRA has discretionary powers to prohibit any departure if it has any outstanding or anticipated tax debts. The order is also issued to a controlling member in a company with an existing tax debt or an anticipated tax debt. A controlling member in a company is the person who holds the majority of shares.
The question arises: Who should be issued the order if there is no single controlling member? Since the Act is silent on this, no person should be issued the departure prohibition order if there is no controlling member in the company. If KRA issues the order to any person who is not a controlling member, then KRA is …… breaking the tax law. There have been cases where persons were issued departure prohibition orders without confirming whether they were controlling members.
Section 45 (9) (a)
Under Section 45 (9) (a), a company has been defined as according to the definition of a company under Section 3, which is as defined ‘under the Companies Act (CAP 486) or a corporate body formed under any other written law, including a foreign law.”
Therefore, a person whose organization does not meet a company’s definition, according to the Companies Act (CAP 486), should not be issued with departure prohibition orders.
For example, organizations not registered under the Companies Act (CAP 486) but declared as companies by the Cabinet Secretary for purposes of the Tax Procedures Act (2015): are exempted from the dictates of Section 45.
Under Section 18 (4) (b)
A controlling member is a member who beneficially holds, directly or indirectly, either alone or together with a related person or persons:
- 50% or more of voting rights are attached to a membership interest in the company.
- 50% or more of the rights to dividends attached to a membership interest in the company.
- 50% or more of the rights to capital attached to a membership interest in the company.
A controlling member is not distinguished by being in the management. A controlling member is determined by considering voting rights, dividends, and capital. Hence, if a person does not hold 50% of the voting rights, dividends, and capital, under this Act, they should not be issued with a departure prohibition order.
There are instances where persons who do not qualify to be issued departure prohibition orders have stopped leaving the country. Again, this is a blatant breaking of the tax law.
There have been instances where persons who are not controlling members have been issued with departure prohibition orders contrary to this Section of the Act; for example, in the recent past, there was news all over the media of a managing director of a Multinational Enterprise (ME) who was issued with departure prohibition order contrary to the dictates of the Tax Procedures Act (2015, Section 45 (1).
Subsection 45 (3)
This subsection demands that the Commissioner will, as soon as practicable after issuing the departure prohibition order to the Director-General, serve a copy of the order on the person named in the order.
The wording in this Subsection brings out the following concerns:
a. The Commissioner will first serve the order to the Director-General without informing or referencing the person to whom the order is issued. This Subsection (3) has given the Commissioner powers to have persons detained at the departure point, often without prior knowledge of any existing order.
This has resulted in some persons being treated as tax fugitives, yet they are unaware that they should not be leaving the country. The majority get to know about the orders while at the airport.
This treatment has had disastrous consequences on the person and tax. Why does KRA sometimes find it challenging to inform the person that they should not travel out of the country? Yet some of these persons are already in contact with KRA. Telling a person they should not leave the country is a better approach than surprises.
Over 90 percent of people will not leave the country. Besides, currently, there is nowhere to hide all the tax agreements that have been made between Kenya and other countries. Additionally, people have much interest in the country. This is a better approach than having the persons embarrassed at the airports.
The fact that persons are arrested at the airport without prior knowledge of departure prohibition orders indicates a lack of goodwill on KRA. Yet, these same persons are expected to comply with tax laws. The tax law should make it mandatory for KRA to inform the persons that they should not travel out of the country until any pending tax debt issues have been resolved.
b. The Commissioner gives the person on whom the order is served a copy ‘as soon as it is practicable. The words ‘as soon as it is practicable’ are vague. What is as soon as it is practicable? Is it within one day, two days, three days, a month, two months, etc.? The tax law should have timelines for a person to be served with a copy of the departure prohibition order. This failure to have timelines has resulted in taxpayers being arrested at the airport, yet they did not know about the orders not to travel out of the country.
The law should address this vagueness of the timelines. This can be done by making it mandatory for a copy of the departure prohibition order to be given to the person on the same day the primary document is released to the Director-General. This must be in the Act.
Many people have been stopped at the airport, yet they only go for a short time for business and return to the country. The embarrassment of being arrested at the airport has psychological, mental, monetary, and business implications. Besides, it also affects tax compliance.
Section 45 (4)
This subsection gives the Director-General powers to prevent the person with a departure prohibition order from Kenya’s departing. However, the Act does not detail what the Director-General should do with the person apart from stopping them from leaving the country. Should the person be arrested, told to return to their house, or what? Many times, the persons are detained by the Director-General.
This is contrary to the Act because the Act does not say that the person should be arrested. Once the persons are arrested, they are handed over to KRA, who insists on taking the person to Court. Again this is contrary to the law because the Act is silent on this aspect.
The Act does not give KRA powers to prosecute a person with a departure prohibition order who walks to the airport and attempts to fly abroad without knowing the demand. The Act should give guidelines on what the:
Section 45 (6)
This subsection dictates that the departure prohibition order shall remain in force until revoked by the Commissioner. This Section does not give the timelines for the revocation of the order. Only conditions for the order revocation are set out under Section 45(7), which should be referenced in Section 45(4).
For every person going abroad, time is of the essence. The law should set timelines for the Commissioner to revoke the departure prohibition order when the person fulfills the conditions in Section 45 (7).
Section 45 (8)
The Subsection dictates that the Commissioner shall notify the director and the person named in the departure prohibition order as soon as they decide to revoke the order ‘as soon as it is practicable.’ Again the law should set timelines.
The Commissioner may choose to revoke the departure prohibition orders but fail to inform the Director-General or the person. The Commissioner may not be available to notify the Director-General and the person if there will be delays.
Section 45(9)
This subsection gives blanket cover to the Government, Director-General, Commissioner, or authorized KRA officers from prosecution under this Section 45. This opens Section 45 to abuse because of its vagueness. The persons with departure prohibition orders are the ones who suffer in silence because, first, no one wants the word to spread that they were stopped from going out of the country.
This suffering has consequences, negatively impacting tax compliance and the relationship between the taxpayer and KRA. However, those persons who abuse the law should not be happy. In Kenya, there is no capping of when one can take a case to Court. A taxpayer may one day take KRA to the Supreme court for Constitutional interpretation of Section 45.
Conclusion:
In Kenya, no person is above the law. Taxpayers have rights and obligations under various tax laws. While implementing the tax laws, KRA should be careful about handling taxpayers. KRA is there because there are taxpayers, and if there were no taxpayers in Kenya, there would be no KRA.
Everyone must obey tax laws in this country…and … laws are not guidelines. Though Section 45(9) gives immunity to KRA officers, the Section can be subject to constitutional interpretation to determine whether an officer acted within the Constitution, and damages may be brought against the officer as a person, whether in the office or out of office. The government should also clear the vagueness in the specific subsections of Section (45) to apply the tax law properly.
Questions:
- Have you or anyone you know been given a departure e-prohibition order?
- Did you or the person you know to learn about it at the point of departure, or you or the person you know have been informed beforehand?
- How would you describe the experience?
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Dr Wakaguyu
