CEOs of tax-evading firms may face travel ban
CEOs and other top managers of tax-evading companies could soon be barred from flying out of the country if the Kenya Revenue Authority (KRA) gets new powers proposed in the Finance Bill 2019.
Treasury Secretary, Henry Rotich has proposed amendments to section 45 of the Tax Procedures Act, 2015, to include all “tax representatives” of an organization, effectively expanding the list of company officials against who KRA can issue departure prohibition orders (DPO) until outstanding tax is paid in full or arrangements for payment are made.
A circular sent by the taxman to all its employees says the “tax representatives” of a company will include the CEO, managing director, company secretary, treasurer, trustee, resident director or similar officer of the company acting or purporting to act in such position.
“The proposed amendment enhances the effectiveness of the DPO — It will ensure that tax representatives of companies whose controlling members are not resident in Kenya do not evade their responsibilities of ensuring that taxes from the companies are accounted for,” says KRA in the circular.
If passed into law by Parliament, the changes will expand KRA’s scope in going after officials of companies being investigated for tax evasion, increasing their success rate in tax recoveries. Audit and advisory firm PKF East Africa says the proposed change will mean that all senior managers of companies lose indemnity and will now be held responsible for tax liabilities of the firms that they lead.
“This poses risk to the tax representatives and is aimed at creating responsibility for tax compliance across the senior leadership of corporations,” says PKF in its post-Budget review.
KRA currently has powers to issue departure prohibition orders only when they have reasonable grounds to believe that a person may leave Kenya without paying tax due under their name or in a company in which they have a controlling stake.
Some of those who have felt the force of the KRA’s travel bans over tax disputes include Motor dealer, Foton, East Africa’s managing Director, Da Li and Libya Oil Kenya general manager Duncan Murashiki.
The new proposal will now see KRA cast the net wider as it seeks to not only bring more people into the tax net but also ensure higher tax compliance among the firms and individuals already captured in its records.
PKF director, James Mulili said the new law could result in instances where the entire senior managers of companies have their travel documents, such as passports, seized so that they remain in Kenya to answer to any tax improprieties