Taxation of political campaign contributions in Kenya.
Taxation of political campaign contributions in Kenya.
The Case of Commissioner Investigations and Enforcement v Kidero [2022] KEHC 52 (KLR)
Brief Facts
This was an appeal emanating from the Tax Appeal Tribunal, brought before the Late Hon. Justice David Majanja at the High Court of Kenya in Milimani (The Commercial and Tax Division).
The Commissioner, in his audit of Evans Odhiambo Kidero’s financial and business activities spanning January 2011 to December 2015, initially found that KES 680,903,503.00 was owed in taxes, penalties, and interest. However, following Kidero’s objection, the Commissioner revised the tax liability to KES 427,269,795.00, inclusive of penalties and interest, in a decision dated December 21, 2016.
During the audit, Kidero claimed that KES 423,000,000.00 were political campaign contributions, something that the Commissioner contested . The Commissioner demanded a detailed breakdown of how and when these funds were deposited into Kidero’s personal account, EK Center account, and MPESA till number. Without such documentation, the Commissioner could not confirm the legitimacy of the deposits into Kidero’s accounts and therefore disallowed the deduction.
In response to the Commissioner’s decisions, Kidero appealed to the Tax Appeals Tribunal, which ruled in his favor, overturning the Commissioner’s assessments. Dissatisfied with the Tribunal’s decision, the Commissioner subsequently filed an appeal against it.
Issue for Determination
Whether political campaign funds received by a taxpayer are taxable.
Determination
In its ruling, the court affirmed that unless the taxpayer demonstrates that funds were received explicitly as political campaign contributions and were subsequently used for campaign purposes, those funds must be treated as taxable income. The court emphasized that regardless of whether campaign finance regulations mandate record-keeping, it is fundamentally the taxpayer’s responsibility to maintain records that allow the tax authorities to assess liabilities accurately under the Income Tax Act (ITA) and Tax Procedures Act (TPA).
Regarding the norms of political fundraising, the Tribunal had accepted the respondent’s argument that in Kenyan fundraising practices, donations are often given voluntarily without formal records, especially in community-driven events (Harambee). However, the court found this acceptance inconsistent with the taxpayer’s obligation to maintain clear records, particularly in cases where personal and campaign funds are intermixed, as was the case here.
Conclusion
Based on the court’s analysis, it is clear that political campaign donations themselves are not inherently taxable. However, for funds received to qualify as non-taxable campaign contributions, the taxpayer must maintain meticulous records demonstrating that these funds were indeed received from donors specifically for political campaign purposes.
The court emphasized that the burden of proof rests squarely on the taxpayer to substantiate the origins and use of such funds.
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