Billionaire advocate makes new law - on tax amnesty

Read the judgment here

Many ordinary Kenyans will be interested to read of this socialite billionaire lawyer besting the tax authorities in a sensational dispute. But that would be to miss the point. The most important element of the case and its outcome however is this: the courts have once again faulted officials in Kenya for not following the rules on decision-making that apply under a constitutional dispensation. These critically important rules are that “every person” has the right to administrative action that is reasonable and procedurally fair, among other things, and that if anyone is likely to be “adversely affected” by administrative action, they have a right to written reasons.

In this case, decided by Judge George Odunga of the Nairobi high court, Kiplagat complained that these two fundamental pillars were ignored by tax officials when they made crucial decisions affecting him: the action taken against him was not “procedurally fair” and he was given no reasons.

Under a constitutional state with provisions like those in Kenya, that – on its own – is almost the end of the matter, right there.

Given the actions of the tax officials, there is thus nothing strange about the court ruling as it did on his application. Far stranger is that the tax authorities were so cavalier in the way they took decisions affecting Kiplagat. They seem not to have considered for a moment that they were infringing the constitution and making their decision vulnerable to being overturned. And even after the decision was made, and after Kiplagat pointed to the problem, they still did not realise the grave they were digging for themselves in their approach to the dispute.

The extent of Kiplagat’s wealth is legendary. Though no one knows the exact figure, most people have read that he was declared the biggest individual tax payer in Kenya for 2003. The new judgment however gives some indication of the figures involved. And they are eye-watering.

When he launched his application, Kiplagat had several complaints.

He complained, for example, that though he had taken advantage of an amnesty to pay all his pre-2003 back tax, amounting to Kshs 18,773,826, he was still hit with an additional bill for penalties and interest. Under these circumstances, what was the meaning of an amnesty, he asked, particularly since the tax authorities had issued a tax clearance certificate saying that he had been “relieved of all liability for tax payment” up to 2003 and could thus participate in public tenders?

When he asked the revenue authorities for a waiver of penalties and interest the minister of finance replied, giving no reasons, but stating that the waiver request “had been declined” and directing “that the matter be closed as no appeal would be considered.”

That reference to an appeal being refused was fuel on the fire already caused by the unconstitutional decision-making that had preceded it. According to Kiplagat, “since he had not indicated that he intended to lodge an appeal, the minister’s response was clearly anticipatory, biased and a clear abuse of discretion … arrived at without affording him an opportunity of being heard.”

He also argued that the seven days’ notice he received to pay the additional Kshs 19,153,399 in interest and penalties was “clear abuse of office”.

Because of certain clauses in the law on tax amnesty and the way in which the revenue authorities understood them, Kiplagat was billed for penalties and interest while other categories of tax payer who applied for amnesty were not charged for penalties and interest. As the judge put it, the tax officials interpreted the law to mean that “tax defaulters were entitled to … amnesty as long as they had not been assessed while those who were tax compliant would not enjoy the same benefit”.

Quoting extensively from South African judgments as well as from earlier Kenyan decisions, the judge concluded that “where the law extends benefits such as tax amnesty, every person is entitled to equal benefit of (the) amnesty”. The tax authorities had not tried to put up a rational justification for the “clearly discriminatory provision” that excluded certain taxpayers from amnesty. Judge Odunga thus held that the provisions effectively denying people such as Kiplagat from the full benefit of amnesty were unconstitutional and void to that extent, and he concluded that Kiplagat was “entitled to amnesty as a right and the minister had no discretion in the matter”.

There will surely be people in Kenya who complain that billionaires “always win in court” and that the judiciary is biased towards the rich. But the truth is different: in this case the tax authorities, as so many state officials still do, failed to act constitutionally in the decision they took about Kiplagat.

Is there something to learn from this matter? Yes, indeed: given the number of cases involving administrative decision-making failures, it is increasingly obvious that Kenyan officials need urgent training on decision-making in a constitutional era.