Favourable tax tribunal rulings embolden KRA

Favourable tax tribunal rulings embolden KRA

Things are looking up for the taxman thanks to the newly constituted tax tribunal, which has netted over Sh11 billion in taxes.

On January 22, the Kenya Revenue Authority (KRA) celebrated one of its biggest wins against tax cheats in the country. This is after the Tax Appeals Tribunal allowed it to go after Sh9.3 billion tax from Paleah Stores Limited, a company dealing in foodstuffs and building materials.

The tribunal ruled in favour of KRA for Sh1.36 billion corporation tax and Sh7.89 billion value added tax (VAT), following an appeal launched before it by the company in May 2017. The firm was contesting the authority’s assessment and demand of taxes for five years up to 2014.

The company told the tribunal that it had been a victim of bad professional advice, which led to its accounts and tax returns being understated for the period.

“The appellant (Paleah Stores) has not proved to the satisfaction of the Tribunal that the respondent’s (KRA) additional income tax assessments for 2008 to 2014 years of income were excessive,” the tribunal found. It then handed KRA the win, setting the stage for subsequent wins the authority has enjoyed against tax cheats between January and April.

On April 1, the tribunal reviewed transactions leading to the sale of land where the Garden City Malll now sits along Thika Superhighway, giving KRA the go-ahead to collect Sh672 million from Ruaraka Diversified Investments Limited, the real estate company that sold the land. The tribunal held that the real estate firm was liable to pay the amount in corporation tax.

 The company had argued that it was supposed to pay capital gains tax as opposed to corporation tax after selling the land.

On the same day, the tribunal dismissed an appeal by Joycott General Contractors seeking an order to set aside KRA’s decision confirming additional corporation tax and VAT assessments for 2015 and 2016. The ruling paved way for the authority to collect Sh18.6 million from the firm.

In another case, KRA was given the green light to collect Sh79 million from Standard Chartered Insurance Agency Limited in corporation tax, withholding tax and excise duty.

On April 23, it was the turn of Mastermind Tobacco to feel the heat when the company was ordered to pay KRA Sh517.7 million in taxes – Sh90.2 million in VAT and Sh427.5 million excise duty.

Equity bank has also found itself on the wrong side the tribunal’s rulings when KRA was allowed to collect Sh234 million for pay as you earn (PAYE) on employee stock ownership (ESOP). Aggrieved, the bank appealed the decision but it was upheld by the High Court.

Employment benefit

“The Bank operates an ESOP where employees are given an opportunity to acquire the bank’s shares at discounted prices. According to the Income Tax Act, if the employee opts to exercise that option, a taxable benefit is conferred similar to any other employment benefit,” the authority stated this month after the High Court’s decision.

Such decisions have emboldened the authority to go after more tax evaders and widen the country’s tax base.

Last month, KRA also announced that it had collected over Sh21 billion from the alternative dispute resolution mechanism after resolving 393 cases between July 2020 and March this year.