KRA Sh1 billion claim against airline now risks collapse

The Kenya Revenue Authority (KRA) risks losing its Sh1 billion tax battle with one of Kenya’s biggest domestic airlines, after failing to defend a case seeking to quash agency notices issued eight months ago.

Agency notices are commonly issued by KRA to banks holding deposits on behalf of a taxpayer and result in the bank freezing such funds to enable it recover its dues.

Bluebird Aviation sued the KRA in January seeking to stop the collection of Sh1 billion in taxes, as the airline claims that no assessment of its books has been done to warrant the demand.

The case has come up in court 10 times since January, but the taxman is yet to file a defence.

Justice Alfred Mabeya on October 25 said that he will proceed to deliver a ruling, as the taxman’s non-involvement has delayed the hearing of the suit for several months.

The Judge has adjourned the case on eight different occasions since January, to give the taxman a chance to enter an appearance and defend the suit.

The KRA sent agency notices to Bluebird Aviation’s bankers on January 25, a move that threatened to stall the airline’s operations.

Agency notices are used by the taxman to freeze bank accounts and recover an equivalent of taxes claimed.

Bluebird Aviation filed a case against KRA on February 3 and sought orders suspending the agency notices on account of the risk to operations.

Justice Mabeya suspended the agency notices pending the hearing of both parties in the case and ordered Bluebird Aviation to serve the KRA with the court pleadings.

Bluebird Aviation’s lawyers have attached an affidavit from their process server indicating that KRA was furnished with the court papers on February 7, a day before the parties were to appear before Justice Mabeya for the first hearing.

The airline says in its court papers that the KRA has since 2014 sent audit notices to it, but that none has ever resulted in an unresolved dispute.

Bluebird adds that it has always paid taxes due, and filed returns on time and that the KRA owes it Sh539 million in rebates that accumulated between 2016 and 2020.

The rebates, under Kenyan law, can either be refunded to a taxpayer or used to offset future liabilities to the KRA.

Bluebird further states that it paid Sh2.1 million in minimum tax before the High Court ruled that the levy introduced last year was unconstitutional, hence the KRA owes it a refund on the amounts.

“The respondent (KRA) is required to reimburse the company (Bluebird Aviation) the said amount of Sh539,435,274 or to apply the amount against any future corporate liabilities that the company may have with the respondent. Fundamentally, the company does not owe the respondent any tax. To the contrary, the respondent owes the company the said sum in rebates,” Bluebird Aviation argues.