The Tax Procedures Act is intended to regulate procedures for tax collection and it’s not intended to apply where a tax payer deliberately fails to meet his tax obligation

Giche Ltd & 2 others v Director of Public Prosecution & 2 others [2020] eKLR

ACEC Petition No. 20 of 2020

High Court at Nairobi

Anti Corruption and Economic Crimes Division

M Ngugi, J

November 6, 2020

Reported by Kakai Toili

Statutes – interpretation of statutes – interpretation of section 80 of the Tax Procedures Act – where section 80(1) prohibited prosecution whenever penalties were imposed on a taxpayer under any tax law - whether section 80 of the Tax Procedures Act overrode the provisions of the Anti-Corruption and Economic Crimes Act(ACECA) which dealt with fraudulent failure to pay taxes - whether the charging of a tax payer under the ACECA for fraudulent failure to pay taxes violated section 80(1) of the Tax Procedures Act  - Tax Procedures Act No 29 of 2015, section 80; Anti-Corruption and Economic Crimes Act No. 3 of 2003, sections 1(g)(i) and 45.

Criminal law – malicious prosecution – ingredients of malicious prosecution –  claim that prosecution for fraudulent failure to pay taxes and a claim for unexplained assets under the Anti-Corruption and Economic Crimes Act amounted to malicious prosecution – where section 80(1) of the Tax Procedures Act prohibited prosecution whenever penalties were imposed on a taxpayer under any tax law - Whether the prosecution for fraudulent failure to pay taxes and a claim for unexplained assets amounted to malicious prosecution - Constitution of Kenya, 2010, article 157(1) and (11); Tax Procedures Act No 29 of 2015, section 80(1); Anti-Corruption and Economic Crimes Act No. 3 of 2003, sections 1(g)(i) and 45. 

Brief facts

The 2^nd and 3^rd petitioners were the directors of the 1^st petitioner and had been jointly charged with the offence of fraudulent failure to pay taxes payable to Kenya Revenue Authority (KRA) contrary to section 45(1)(d) as read with section 48 of the Anti-Corruption and Economic Crimes Act No. 3 of 2003 (ACECA). The 2^nd respondent, Ethics and Anti-Corruption Commission (EACC) had launched investigations into allegations that the 2^nd petitioner, a manager at KRA, through the 1^st petitioner, and found that the 2^nd petitioner had accumulated assets disproportionate to his known sources of income through corrupt conduct. The petitioners claimed that the 2^nd petitioner had legitimate sources of income as an employee of KRA for over 30 years.

EACC also established, from an assessment by KRA, that the 1^st petitioner had not paid taxes amounting to Kshs 38,692,694. The tax assessment from KRA showed that the 1^st petitioner had accumulated tax and penalties amounting to Kshs. 38,692,694. The petitioners had agreed to pay the amount, and had indeed been paying the money due.

The petitioners sought among others, the termination of the prosecution against them and damages for alleged breach of their constitutional rights They contended that their arrest and prosecution was unlawful given the provisions of section 80(1) of the Tax Procedures Act (TPA), which they argued expressly prohibited their prosecution as a penalty had been imposed on them, and they had paid part of it.

Issues

1. Whether section 80 of the Tax Procedures Act (TPA) on the general provisions relating to administrative penalties and offences overrode the provisions of the Anti-Corruption and Economic Crimes Act (ACECA) which dealt with fraudulent failure to pay taxes.
2. Whether the charging of a tax payer under the ACECA for fraudulent failure to pay taxes violated section 80(1) of the TPA which prohibited prosecution whenever penalties were imposed on a taxpayer under any tax law.
3. Whether prosecution for fraudulent failure to pay taxes and a claim for unexplained assets amounted to malicious prosecution in light of section 80(1) of the Tax Procedures Act prohibited prosecution whenever penalties were imposed on a taxpayer under any tax law.

Relevant provisions of the law

Constitution of Kenya, 2010

Article 157

(10)The Director of Public Prosecutions shall not require the consent of any person or authority for the commencement of criminal proceedings and in the exercise of his or her powers or functions, shall not be under the direction or control of any person or authority.

(11)  In exercising the powers conferred by this Article, the Director of Public Prosecutions shall have regard to the public interest, the interests of the administration of justice and the need to prevent and avoid abuse of the legal process.

Anti-Corruption and Economic Crimes Act No. 3 of 2003

Section 45

1. A person is guilty of an offence if the person fraudulently or otherwise unlawfully—

(d) fails to pay any taxes or any fees, levies or charges payable to any public body or effects or obtains any exemption, remission, reduction or abatement from payment of any such taxes, fees, levies or charges.

Tax Procedures Act No 29 of 2015

Section 2

1. The object and purpose of this Act is to provide uniform procedures for—
   1. consistency and efficiency in the administration of tax laws;
   2. facilitation of tax compliance by taxpayers; and
   3. effective and efficient collection of tax.

Section 80 - General provisions relating to administrative penalties and offences

1. A person shall not be subject to both the imposition of a penalty and the prosecution of an offence in respect of the same act or omission in relation to a tax law.
2. If a person has committed an act or omission that may be liable under a tax law to both the imposition of penalty and the prosecution of an offence, the Commissioner shall decide whether to make a demand for the penalty or to prosecute the offence.
3. If a person has paid a penalty under a tax law and, in respect of the same act or omission for which the penalty was paid, the Commissioner commences a prosecution, the penalty shall be repaid to the person as a refund of tax under section 47, and the person shall not pay a penalty, in the case of a prosecution, unless the prosecution is withdrawn.

Held

1. The Tax Procedure Act (TPA) was described as an Act of Parliament to harmonise and consolidate the procedural rules for the administration of tax laws in Kenya, and for connected purposes. Section 2 of the TPA provided for its object and purpose. At section 80(1) of the TPA on the general provisions relating to administrative penalties and offences provided that a person should not be subject to both the imposition of a penalty and the prosecution of an offence in respect of the same act or omission in relation to a tax law.
2. A tax payer should not be subjected to payment of tax that had not been imposed on him in clear and unambiguous language. The law was that taxes could not be levied except on the basis of legislation that was couched in language that was clear and unambiguous.
3. Section 80 of the TPA did not override the provisions of ACECA, which dealt with fraudulent failure to pay taxes. The provisions of the TPA were intended to regulate procedures for tax collection, as the object and purpose provisions indicated. They were not intended to apply to circumstances where a tax payer deliberately failed to meet his tax obligation, an act that was expressly defined in the ACECA as amounting to corruption, and was an offence under section 45 of ACECA. The overriding concern in ACECA was deterring corruption in public officers, one element of which, as defined in section 1(g)(i) of ACECA, involved an offence involving dishonesty in connection with any tax, rate or impost levied under any Act.
4. The 2^nd petitioner was a long-term employee of the revenue collecting body, the KRA. As a Manager in KRA, he knew the obligations of a tax payer under the various tax regimes implemented by KRA. Should the allegations made against him and his co-petitioners be established, he had unlawfully failed to pay taxes due. He and his co-petitioners had been charged under anti-corruption legislation for fraudulent failure to pay taxes. In so far as such charges were based on ACECA, section 80(1) of the TPA was of no avail to the petitioners. The respondents had not violated section 80(1) of the TPA as it did not apply to prosecutions under ACECA.
5. It was not the intention of sections 80(2) and (3) of the TPA that a wrong doer who fraudulently denied the public of revenue gets to retain the tax and penalties following prosecution. The arrest and prosecution of the petitioners were not in violation of section 80(1) of the TPA, nor did the section prohibit the prosecution of a tax payer, under ACECA, on the basis that penalties had been levied by the Commissioner. 
6. The High Court was empowered to stop a prosecution when such prosecution had been instituted for a reason other than for the advancement of criminal justice. The petitioners had not established that their prosecution was actuated by malice on the part of the respondents.
7. Section 80(1) of the TPA did not apply with respect to prosecutions of corruption offences related to tax and revenue under ACECA. Further, under section 55 of ACECA, EACC was entitled to pursue a claim for unexplained assets. The fact that it pursued a prosecution under section 45 of ACECA and a claim for unexplained assets did not demonstrate malice. There was no evidence that any representation was made to the petitioners that they would not be prosecuted. Further, the lapse of three years from the start of the EACC investigations did not give rise to an inference of malice on the part of the investigative bodies.
8. The exercise of State powers of prosecution was vested in the 1^st respondent, the Director of Public Prosecutions (DPP). There was nothing placed before the court that suggested that the DPP, in exercising his discretion to prefer charges against the petitioners acted under the control of any person or body, or that he acted in a manner that was not consistent with the public interest or the interests of the administration of justice. There was no evidence to suggest that the actions of the DPP were inimical to the need to prevent and avoid abuse of the legal process.
9. In the absence of evidence from the petitioners demonstrating that other tax payers similarly situated had been treated differently, the court was unable to find a violation of the right to non-discrimination and equal benefit of the law.
10. The 2^nd and 3^rd petitioners were arrested on June 29, 2020, and charged in court the following day, June 30, 2020. Upon taking plea, they were granted bail and bond immediately. They were thus accorded all the constitutional protections guaranteed to an arrested or accused person under article 49 and 50 of the Constitution. There was no basis for an allegation or finding that the petitioners’ rights were violated in any way.

Petition dismissed with no order as to costs.

Whether section 46 of the Anti-Corruption and Economic Crimes Act which criminalized improper conferment of benefit also criminalized the intent to confer a benefit

Anthony Juma Opondo & another v Republic [2020] eKLR

ACEC Appeal No. 5 of 2020

High Court at Nairobi

M Ngugi, J

October 7, 2020

Reported by Chelimo Eunice

Interpretation of Statutes – interpretation of statutory provisions – Anti-Corruption and Economic Crimes Act - interpretation of section 46 of the Anti-Corruption and Economic Crimes Act – whether section 46 of the Anti-Corruption and Economic Crimes Act which criminalized improper conferment of benefit also criminalized the intent to confer a benefit – where the appellants flouted the Ethics and Anti- Corruption Commission’s internal processes regarding investigations with intent to confer a benefit to themselves – where such conduct brought some degree of disrepute to EACC – whether flouting of internal processes and bringing the Ethics and Anti- Corruption Commission to disrepute amounted to the offence of abuse of office as contemplated under Anti-Corruption and Economic Crimes Act - Anti-Corruption and Economic Crimes Act (Act No. 3 of 2003), sections 46 and 47.

Criminal Law – anti corruption and economic crimes – crime of improper conferment of benefit – crime of intent to confer benefit – whether section 46 of the Anti corruption and Economic Crimes Act criminalized both improper conferment of benefit and also criminalized the intent to confer a benefit Anti-Corruption and Economic Crimes Act (Act No. 3 of 2003), sections 46.

Brief facts

The appellants were charged in the Chief Magistrate’s Anti- Corruption Court (the trial court) with offences under the Bribery Act and the Anti-Corruption and Economic Crimes Act (ACECA). It was argued that the appellants, being persons employed by the Ethics and Anti- Corruption Commission (EACC), requested for a financial advantage amounting to Kshs 15 million from a director of Mwananchi Credit Limited (the complainant) through his lawyer, with intent that, in consequence, they would compromise a purported tax evasion investigation involving the said Mwananchi Credit Ltd.

At count I, they were charged with the offence of receiving a bribe contrary to section 6(1) (a) of the Bribery Act as read with section 18(1) and (2) thereof. At count II, they were charged with the offence of conspiracy to commit a corruption offence contrary to section 47A (3) as read with section 48(1) of ACECA. They were separately charged at count III and IV with the offence of abuse of office contrary to section 46 as read with section 48(1) of ACECA.

They pleaded not guilty to the offences and after a full trial, they were acquitted of the charges in count I and II. However, they were convicted on the charge of abuse of office as charged in count III and IV respectively. They were each sentenced to a fine of Kshs 1 million and in default, to a term of imprisonment for 10 years. Dissatisfied with both the conviction and sentence, the appellants preferred the instant appeal seeking to quash their conviction and sentence. They argued, among others, that the charge sheet was fatally defective as a consequence of duplicity of the charges and that the trial court misdirected itself in relying on internal procedural breach as opposed to the specific breach of the law hence arrived at a wrong decision.

Issues

1. Whether section 46 of the Anti-Corruption and Economic Crimes Act which criminalized improper conferment of benefit also criminalized the intent to confer a benefit.
2. Whether flouting of internal processes and bringing the Ethics and Anti-Corruption Commission to disrepute amounted to the offence of abuse of office as contemplated under the Anti-Corruption and Economic Crimes Act.

Held

1. The question whether or not the appellants summoned the complainant’s lawyer (the lawyer) was not material to the issue before the trial court. The evidence showed that the lawyer went to the EACC offices on April 27, 2017. Having been let into the premises by an usher, EACC’s office assistant opened the office of the Deputy Director in charge of investigations on the instructions of the 2^nd appellant. The lawyer met the appellants in the said office and they subsequently met at Uganda House, where the appellants allegedly informed him that they could terminate the tax evasion investigations against the complainant and his company.
2. Whether it was the lawyer who called the appellants, or the appellants who called him and summoned him to EACC would not make a difference if, at or subsequent to their meeting, the appellants demanded a bribe in order to terminate the investigations against the complainant. Whether directly or indirectly, the evidence, including analysis of call data, indicated that it was the appellants who set in motion the communications that brought the lawyer to the EACC on April 27, 2017. However, whether the appellants summoned the lawyer or he called the 1^st appellant was not material in the case.
3. The charge sheet against the appellants was not defective. It set out clearly a statement of the specific offence or offences with which the appellants were charged, as well as the particulars of the offence with which they were charged. The problem, however, was that the particulars of the offence with which the appellants were charged were not offences under the provisions of section 46 of ACECA. The provision criminalized the conferment of a benefit, not the intent to confer a benefit. That would explain why the penalty for the offence included a fine of double the benefit that an accused person obtained, or the loss suffered by the public entity in question.
4. From the evidence presented before the court, the appellants were alleged to have had the intention of obtaining a bribe, ostensibly to drop investigations that they were purportedly carrying out against the complainant. The intention of ACECA in section 46 was to criminalize the act of obtaining a benefit, not the intent to obtain one. Section 47A of ACECA contained the provisions that rendered the attempt or intent to use one’s office to confer a benefit an offence.
5. The question was whether the evidence before the court showed, beyond reasonable doubt, that the appellants attempted to obtain a benefit of Kshs 15 million from the complainant. The person who was at the centre of the matter was the lawyer. The lawyer had informed the complainant about the alleged investigations and the demand for a bribe, and the complainant had ultimately filed a report with the EACC.
6. From the evidence, the appellants met the lawyer at the EACC offices on April 27, 2017. The appellants alleged that they were investigating the allegations of tax evasion, even though none of them had been assigned the case, which did not exist, and in the case of the 1^st appellant, he had never been assigned any investigations as he was engaged in civil litigation for civil recoveries.
7. There was a clear internal mechanism for reporting of complaints, for intelligence and preliminary investigation, and for assignment of investigators. The appellants appeared to have invented a complaint against the complainant’s company, assigned it to themselves, started investigating it and demanded Kshs 15 million as a bribe. It was only after the complainant had reported the matter at the EACC that the 1^st appellant rushed to report the complaint on tax evasion at the EACC Report and Data Centre.
8. The evidence that the lawyer gave before the court, however, was totally different from what he had told the complainant and it totally undercut the prosecution case. He essentially retracted what he had informed the complainant, testifying instead that the appellants had told him that the money was going to be paid to Kenya Revenue Authority to regularize the tax arrears due from the complainant.  It was, thus, not possible to say from the evidence before the court, that the prosecution established, beyond reasonable doubt, that the appellants attempted to confer on themselves a benefit of Kshs 15 million. In the circumstances, even though the evidence, shorn of the retraction by the lawyer, strongly suggested the attempt to confer a benefit of Kshs 15 million to themselves, the benefit of the doubt had go to the appellants.
9. The trial court focused on the unprocedural investigations by the appellants in reaching the conclusion that the appellants were in abuse of office. The appellants, from their conduct, could have intended to abuse their office to improperly, indeed corruptly, confer a benefit to themselves, an offence under section 46 of ACECA. They could also have attempted to obtain such benefit, an offence under section 47A of ACECA. Their plan, however, came to a cropper when the complainant reported the matter at the EACC, and the 1^st appellant was forced to hastily report the alleged complaint against the complainant’s company at the EACC Data and Report Centre. 
10. The evidence of the lawyer, however, meant that the only thing that could be said was established with certainty was that the appellants operated in contravention of the internal processes of EACC. They flouted all the internal processes regarding investigations, doubtless with intent to confer a benefit to themselves, and such conduct most certainly brought some degree of disrepute to EACC, what was one to make of the integrity of the anti-corruption fight if those charged with waging it engaged in corruption themselves. However, bringing EACC to disrepute and flouting internal processes did not amount to the offence of abuse of office as contemplated under ACECA.

Appeal allowed.

Orders

1. Conviction of the appellants quashed and the sentences set aside.
2. The fine of Kshs 1 million paid by the 1^st appellant ordered to be refunded to him.
3. The 2^nd appellant ordered to be set at liberty unless otherwise lawfully held.