Athletes Vs Kenya Revenue Authority: What Does The Income Tax Act Say

There has been a lot of debate about the athletes taxation issue online of late. I have found myself caught up in the debate, especially because my strong opinion is that athletes ought to pay taxes. Yes, there is the risk of double taxation when they earn an income in countries which Kenya does not have double taxation treaties with, but this risk applies to all Kenyan residents, not just athletes. There is a bigger conversation to be had regarding having double-taxation treaties with more countries, but for now, “walipe ushuru tujitegemee”.

The purpose of this post isn’t to debate that (though I respond to the issues people were raising with me on Twitter). I noticed that a lot of people seem to confuse citizenship and residence for purposes of tax. The tax man is solely interested in Kenyan residents who he defines as follows:

“resident”, when applied in relation –

(a) to an individual means –

(i) that he has a permanent home in Kenya and was present in Kenya for any period in a particular year of income
under consideration ; or – in this case, most athletes would qualify since they have permanent homes in Kenya and train in Kenya. Of course they have the option of retaining their citizenship but relocating to other countries as residents, though that would mean they lose the right to train in Kenya which would be unfortunate.

that he has no permanent home in
Kenya but –

(A) was present in Kenya for a period or periods amounting in the aggregate to 183 days or more in that year of income; or

(B) was present in Kenya in that year of income and in each of the two preceding years of income for periods averaging more than 122 days in each year of income;

On the issue of double taxation, the athletes claimed that they are already paying taxes in the countries they compete in and therefore would be subject to double taxation. At the moment, Kenya has double taxation treaties with several countries (see list here), which protects residents earning income from these countries from double taxation. The list includes the UK, which was cited by the athletes as one of the countries that had punitive taxes. I believe their representative misinformed the media a bit on this.

On countries which we don’t have double taxation treaties with, the law provides for special relief by the Minister of Finance, which allows the residents to offset taxes paid in other countries. Listening to the KRA representative speak on this matter, I believe athletes have this relief. She said that when computing the tax due, the athletes are allowed to deduct taxes paid in other countries…

Computation of credits under special arrangements

42.(1) This section shall have effect where, under a special arrangement, foreign tax payable in respect of income derived by a person
resident in Kenya is to be allowed as a credit against tax chargeable in respect of
that income.
The tax chargeable upon the income of a person in respect of which a credit is to be allowed under a special arrangement shall be the amount
by which the tax chargeable (before allowance of the credit) in respect of his total income is increased by the inclusion of that income in his total income; but where foreign tax is payable at different rates on different parts of the total income of that person, the tax chargeable on that income shall be apportioned to each part in such amounts as the Commissioner may determine to be just and reasonable.

Questions that came up in the debate:

1. Shouldn’t Lupita Nyong’o (the latest Hollywood breakout star from Kenya) also pay taxes like athletes? Well, I don’t know much about her living arrangements, but I figure she is US resident, despite being a Kenyan citizen (probably has dual citizenship). I don’t think she has a permanent home here and I don’t get the feeling she has been in the country long enough this year to be a resident. However, if she is, then she should pay taxes. Kenyans in the diaspora aren’t liable to income tax while working abroad.
2. Why isn’t KRA targeting other individuals and aren’t they being unfair to target athletes? Well, KRA has the duty to collect taxes, but it has limited resources to reach every citizen. The logical thing is to start with the easier, more visible targets. For example, KRA will visit Nakumatt before it visits the kiosk in your neighbourhood, while both are taxable. In this case, athletes are visible and for that reason the net has captured them. Unfair? Maybe. Illegal? Nope.
3. Don’t athletes pay enough taxes already? Why should they pay more? Well, using this logic, I could also argue that I am paying enough taxes (VAT even on farm inputs). I do not think KRA can and should apply tax laws selectively.
4. What about patriotism? I am not skilled enough to respond to this, but I believe patriotism is freely given. We choose to represent Kenya because we are proud of Kenya. Many people represent our country out there. They may not win marathons or appear on TV, but I don’t think we should get tax rebates for patriotism. It opens doors for all sorts of claims.
5. Is it not more prudent to impose taxes that have potential for more revenues and are not punitive for example capital gains tax? Yes, in my opinion, our income tax rates are ridiculously high all things considered. They also needlessly punish employees, while letting business moguls who trade in securities and properties get off easy. This is a conversation to be had on our tax laws generally, but is not a credible argument by the athletes.

That’s my 2 cents on this. I am however not a tax expert, I would love to hear the law interpreted by one, just in case I have missed something.