MPs Warn Sh2.4 Billion Tax Dispute Between KRA and NG-CDF Could Paralyse Constituencies

Members of Parliament have raised alarm over a escalating tax standoff between the Kenya Revenue Authority and the National Government Constituency Development Fund that threatens to halt operations across the country. The dispute centers on Sh2.4 billion in alleged unpaid taxes spanning multiple years, with lawmakers cautioning that failure to resolve it swiftly could cripple essential development projects in hundreds of constituencies.

The conflict traces back to 2020 when KRA began issuing assessments for arrears on various taxes owed by NG-CDF offices nationwide. These demands have now accumulated to a staggering Sh2.4 billion from 288 constituencies, encompassing both historical debts from 2020 to August 2022 and ongoing liabilities from September 2022 through October 2025. The breakdown of the arrears includes Sh1.4 billion under Income Tax specifically Pay As You Earn, Sh506 million in Income Withholding Tax, and Sh460 million in Value Added Tax.

KRA has spotlighted several high-debt constituencies in its notices, such as West Mugirango owing Sh100 million, Kitui Rural at Sh77.9 million, Homa Bay Town with Sh749,000, Suba South facing Sh636,000, and Molo liable for Sh386,000. To date, 21 constituencies have lodged formal objections against these figures, signaling widespread discontent with the authority's calculations and processes.

At the heart of the disagreement lies a series of procedural and legal concerns voiced by NG-CDF managers and the oversight board. They argue that the tax demands were levied without adequate consultation or transparency, questioning the very legality of assessments that extend beyond the standard five-year limitation period outlined in Section 29(5) of the Tax Procedures Act. NG-CDF officials contend that tax liability as withholding agents should only apply from August 2018 onward, when the funds were formally designated under that status. Furthermore, they challenge the accuracy of KRA's computations, which they say rely heavily on financial statements that do not account for actual project timelines or deductions. For instance, they highlight the taxation of full committee expense allocations without subtracting legitimate costs like transport reimbursements of just Sh5,000 per member for meetings.

In response, KRA maintains that it adhered strictly to due process in issuing the assessments. The authority invokes Section 31(4)(a) of the Tax Procedures Act to justify probing beyond the five-year window in instances of suspected fraud or neglect. KRA dismisses the NG-CDF's timeline argument, asserting that taxes legally due are enforceable under Sections 73(3) of the Income Tax Act and 29 of the Tax Procedures Act regardless. On calculation methods, KRA explains that its evaluations draw from multiple documents beyond mere financial statements, with detailed bases provided in official notices. When full records are unavailable from NG-CDF offices, the authority falls back on the documents at hand to estimate liabilities.

The matter gained urgency last month when it erupted on the floor of the National Assembly. Mwingi Central MP Gideon Mulyungi, who chairs the Decentralised Funds Accounts Committee, flagged KRA's letters directing NG-CDF managers to settle the arrears immediately. This prompted a heated debate in the National Assembly Committee on Finance and National Planning, where Treasury Cabinet Secretary John Mbadi presented key documents outlining four primary points of contention between the parties.

During the session, MPs expressed deep divisions over how to proceed. Turkana South MP John Ariko, drawing from his prior experience with the fund, lambasted KRA's approach to minor expenditures. "I have worked in this Fund. In others, a member of the Fund's committee spends Sh5,000 as transport to get to the meeting point, yet this is the amount he gets as allowance. What is KRA taxing?" he questioned, underscoring the perceived overreach on trivial allowances.

Soy MP David Kiplagat urged the Treasury to step in with financial relief, drawing parallels to past government bailouts. "We have bailed out entities like Kenya Airways before. Probably you can consider doing the same in this case," he proposed, emphasizing the broader economic ripple effects on grassroots development.

Not all MPs favored intervention, however. Homa Bay Town MP Peter Kaluma took a firm stance on compliance, rejecting any notion of leniency. "We just need to pay KRA what we owe it, not a penny more, not a penny less," he insisted, prioritizing fiscal responsibility over exemptions.

Mulyungi echoed the call for swift action, noting that numerous constituencies have already contested the figures through formal channels. He warned that without urgent resolution, "operations in numerous constituencies could be crippled," potentially stalling vital initiatives from infrastructure builds to community health programs funded by the NG-CDF.

The potential fallout looms large for Kenya's decentralized development framework. With NG-CDF serving as a critical conduit for equitable resource distribution to constituencies, the impasse risks paralyzing day-to-day functions and derailing hundreds of ongoing projects. Lawmakers fear this could exacerbate service delivery gaps in underserved areas, undermining public trust in both tax collection and local governance.

A related legal precedent adds complexity to the saga. In the Uriri CDF versus KRA case, the Tax Appeals Tribunal ruled in favor of KRA, but the decision currently awaits appeal at the High Court. This outcome has bolstered KRA's position while fueling NG-CDF's pushback on similar grounds.

Looking ahead, MPs have pressed the Treasury for direct mediation to bridge the divide. Constituencies retain the option to file detailed objections and supplementary documentation via established legal pathways under the Tax Procedures Act. As deliberations continue in parliamentary committees, the onus falls on both KRA and NG-CDF to furnish clearer records and engage transparently, lest the Sh2.4 billion shadow cast a long pall over constituency progress nationwide. The coming weeks will be pivotal in determining whether dialogue prevails or deadlock deepens.