National Social Security Fund (NSSF) yesterday suffered a blow after the High Court ordered it to pay Sh2.1 billion to Kenya Revenue Authority (KRA) for income tax arrears related to valuation of assets of the workers’ retirement fund.
The directive puts the fund’s book-keeping practices on the spotlight between 2004 and 2006. High Court Judge Fred Ochieng in his judgment said KRA’s appeal was merited to compel NSSF to pay the tax arrears. KRA had filed the appeal demanding that NSSF pays income tax for the said period during which the fund manager allegedly failed to carry out valuation of its assets, which was a precondition for exemption from income tax.
KRA claimed that Sh953.9 million was a principal tax resulting from non-compliance and was to be paid together with penalties and interest totaling Sh2.1 billion. NSSF had asked the court to quash KRA’s demands, saying the law exempts it from paying income tax regardless of whether it complied with the assets valuation rule or not, and wants the court to quash KRA’s demand.
NSSF in their court papers had informed the court that the local committee erred by failing to hold that non-compliance with the rules, if any by the appellant, did not extinguish the income tax exemption status of the appellant but rather only subjected its board of trustees to a penalty.
The court documents reveal a fatal mistake of non-compliance by the NSSF board that has seen it part with Sh2.1 billion. In 2002, a rule was enacted that imposed conditions that required NSSF to value its assets and allocate any gains to contributors to qualify for exemption from paying income tax.