KRA registers streak of wins in tax disputes
Bernice Mbugua and Nancy Gitonga
The Kenya Revenue Authority (KRA) has won several morale-boosting tax battles worth Sh1.5 billion from big firms and individuals, giving the parastatal a major boost in its efforts to meet collection targets.
Equity Bank is the latest big corporation to suffer a blow after the High Court allowed KRA to collect Sh234 million tax claims against the lender on Thursday.
This was after Justice David Majanja dismissed an appeal by the lender, saying conclusions reached by the Tax Appeals Tribunal were reasonable.
Later that day, another Tribunal upheld a decision requiring Ruaraka Diversified Investments Limited to remit Sh672 million of unpaid taxes to KRA for the sale of land on Thika road where a major mall stands.
In the Equity Bank case, the court upheld KRA’s decision to charge the lender PAYE on Employee Stock Ownership Plan (ESOP) .
“I do not find any reason to interfere with the Tribunal’s decision in each instance as the conclusions reached were within the law,” ruled Justice Majanja.
KRA carried out a Tax Compliance audit and issued an assessment on June 21, 2017, for Sh1.7 billion inclusive of penalties and interest of Sh346 million on account of corporation tax and Sh234,138,308.00 for PAYE while Sh1,158,683,449.00 was on account of excise duty.
Equity objected to the assessment and lodged an appeal at the tribunal, which considered the matter and set aside the commissioner’s tax assessment in respect to corporation tax in the sum of Sh346,147,520 but upheld the commissioner’s tax assessment in respect to PAYE in the sum of Sh234,138,308.
“I find and hold that the Tribunal did not err in concluding that Equity, as an employer, should deduct and remit to the commissioner tax on staff benefits under section 37 of ITA. It, therefore, made the correct finding that Equity Bank is liable for PAYE on the ESOP benefit to its employees,” ruled the judge.
The tribunal has continued to gain traction in tax disputes, premised on the Tax Appeals Tribunal Act, 2013.
Tribunal membership includes tax experts such as retired KRA officials, businesspersons who understand tax processes and lawyers.
Unlike the normal judicial process where filing fees are determined by the amount of revenue in question, a flat rate of Sh20,000 applies.
In addition, taxpayers who file appeals with the Tribunal are at liberty to either represent themselves or be represented by a tax agent.
However, Michael Mburungu, a tax expert at PKF, downplayed KRA’s latest victories, saying they were not extraordinary.
“I do not think anything much about them, as it is a question of reporting. There are also many cases won by tax payers. In fact, a majority of the cases have been won by tax payers,” said Mburungu.
In the Ruaraka Diversified Investments Limited case, a five-member tribunal ruled the firm was liable to pay Sh672,150,686 in corporation tax arising from the sale of the land in 2013 and 2015.
The said land was for the development of Garden City Mall. KRA is seeking tax arrears after the Ruaraka Diversified in 2011 bought land reference No.10119/3 from East African Breweries Ltd for Sh1.2 billion.
In another victory for the taxman, the Tribunal upheld a decision by KRA to demand Sh517 million in taxes from local cigarette manufacturer, Mastermind Tobacco.
This was after the Mahat Somane-led tribunal dismissed an appeal filed by the manufacturer owned by the late billionaire Wilfred Murungi, saying the firm failed to discharge its burden of proof on cigarette consignments.
“The respondent’s objection decision confirming the assessment and demand for taxes in the sum of Sh517,755,155 is hereby upheld,” ruled the tribunal.
Mastermind Tobacco filed the appeal in 2016 against a decision by KRA to demand the said taxes. Before he died, Murungi was faced with the impending forced sale of his properties to settle a Sh2.9 billion tax claim demanded by KRA.
The makers of Supermatch brand, had been forced to file a consent in court indicating the firm was willing to dispose off 12 properties in order to raise Sh1.54 billion as partial payment of one of the tax claims.
The case follows a police operation on November 26 2016, where officers recovered firearms stolen from the Booker Police Station and impounded 419 cartons of super match cigarettes meant for export at a suspect’s residence.
A sample of the cigarettes recovered was taken and provided to Mastermind Tobacco for confirmation and authentication of the product. On December 2, 2016, Mastermind told KRA that the sample provided did not match the quality standards and physical characteristics of the company’s products.
By a letter dated March 26, 2018, KRA assessed Mastermind Tobacco (K) Limited for value added tax (VAT) of Sh90 million and Excise Duty of Sh427 million on account of sales of cigarettes that were classified as exports and hence zero rated but the taxpayer failed to provide proof of exports for the consignments.