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MPs summon CSs Ndungu, Chirchir over Sh6.1Bn GDC’s tax row
Parliament has summoned two Cabinet Secretaries over the unresolved Sh6.147 billion agency notice that the Kenya Revenue Authority (KRA) has slapped the Geothermal Development Company (GDC).
The National Assembly’s Public Investments Committee on Commercial Affairs and Energy also wants the management of Kenya Electricity Generating Company (KenGen), the Kenya Power and Lighting Company (KPLC), the Public Sector Accounting Standards Board, the Treasury’s departments in charge of Investments, and Fiscal and Budget and the Inspectorate of State Corporations to appear before it on March 27, 2024.
The committee chaired by Pokot South MP David Pkosing directed the Treasury Cabinet Secretary Njuguna Ndung’u and his Energy counterpart Davis Chirchir to attend the two-day round table meeting to resolve the tax dispute pitting the KRA and the GDC.
“The Cabinet Secretary for the Treasury and Energy must appear in person. Prof Ndung’u wrote a letter to Mr Chirchir on March 30, 2023 regarding KRA agency notice seeking to freeze GDC bank accounts,” Mr Pkosing said.
“He must appear before us to explain under what power did use to absolve the GDC from Corporate Income Tax (CIT) liabilities of Sh6,147,475,531 and any other subsequent tax obligation based on the appropriations-in-aid (A.I.A) appropriated by Parliament as development grants.”
The committee took the decision to convene a two-day round table meeting after Mr Paul Ngugi, the GDC managing director asked MPs to intervene and resolve the longstanding tax demand from the KRA.
Mr Pkosing said the meeting will seek to determine whether revenue generated by GDC for reploughing to develop green energy is subject to tax.
Mr Ngugi appeared before the committee to respond to audit queries that among others raised the red flag over failure by the GDC to clear the Sh6.147 billion tax arrears that accrued between 2014 to 2019 financial year.
Auditor-General Nancy Gathungu has since 2015 questioned the failure by the GDC to comply with tax laws and other related regulations, including remission of taxes to KRA as per the prescribed due dates.
Ms Gathungu said the GDC management has indicated that its request for abandonment of the liability was not granted and subsequently the corporation paid an instalment of Sh50 million during the financial year 2019.
She said the outstanding liability has not been paid in full and the delayed payment of income taxes has exposed the company to penalties and interests, which continues to increase with the continued delays.
“I am very emotional because this matter started way back in 2016. I am very emotional that this committee has come to our rescue to have this matter resolved. It has been hanging over our necks as GDC,” Mr Ngugi said.
“At least we see a solution coming, going by your decision to convene a round table meeting. We have held several meetings with the Treasury and the KRA but we have been unable to reach an amicable settlement.”
The KRA issued agency notices against the GDC’s bankers on January 26, 2023 requiring the corporation to pay the taxman Sh6,147,475,53, being tax liabilities due from GDC.
Prof Ndung’u said the demand notice by KRA is in respect to income tax on steam revenue that GDC receives from 59 geothermal wells vested to them by the government of Kenya.
He said in efforts to fast-track development of geothermal resources/green energy generation, the government in the financial year 2014/15, vested the 59 wells in Olkaria to GDC.
The wells were developed by the Ministry of Energy through budgetary allocations. “The revenue earned by GDC from sale of steam generated from the wells is recognised as A.I.A and appropriated by Parliament as development grants for specific projects. This was geared towards enhancing exploration of geothermal resources,” Prof Ndung’u said in a letter to Mr Chirchir.
“However, between 2014 and 2019, the GDC erroneously treated the entire revenue from sale of steam as recurrent income. On that basis, during the tax audit by KRA, the authority declared income tax liabilities totaling Sh6,147,475,531.”
Prof Ndung’u said the Treasury had consultations with the GDC management, Fiscal & Macro Affairs and Budget Department and established that development grants as appropriated by Parliament are earmarked for specific development projects.
He said the development grants are not taxable income since the projects will not be completed if part of the grants is deducted to pay tax obligation.
In view of the foregoing, and to ensure GDC mandate is realised as intended, the revenue (A.I.A) from sale of steam from vested wells appropriated by Parliament as development grants should not constitute taxable income,” Prof Ndung’u said.
“In this regard therefore, GDC is absolved from corporate income tax (CIT) liabilities of Sh6,147,475,531.”
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