Court blocks Treasury’s Sh900 million tax demand in NCBA row

NCBA Group Managing Director John Gachora.

NCBA Group Managing Director John Gachora.

Photo credit: Diana Ngila | Nation Media Group

The High Court has stopped the National Treasury from collecting an estimated Sh900 million after it walked back on a tax exemption it granted during the merger of Commercial Bank of Africa (CBA) Group and NIC Group into NCBA.

In a decision following a petition by NCBA on the tax dispute, High Court Judge Mugure Thande stopped the Treasury’s demands pending the court’s directions on the matter.

“I am satisfied that the application has met the test for the grant of conservatory orders at this ex parte stage. Accordingly, Prayer 2 of the application (for conservatory orders) is hereby granted” the Lady Justice said.

The judge also certified the case as urgent and asked the bank to serve the Attorney General and Cabinet Secretary by May 5, responses be filed by May 19, further affidavits by June 2, and for the matter to be mentioned on June 6 for directions.

The Treasury last month walked back on its June 19, 2019, decision that approved exemption from Capital Gains Tax (CGT) in the transaction that merged the two lenders through a transfer of shares and assets, forming the current NCBA Bank — one of Kenya’s biggest lenders.

In a March 24, 2023 letter to the Kenya Revenue Authority (KRA) acting Commissioner-General Rispah Simiyu, and copied to NCBA Group Managing Director John Gachora, Treasury Cabinet Secretary Njuguna Ndung’u revoked the exemption, paving the way for KRA to proceed and collect the taxes from NCBA.

“Upon your letter and in order to ensure all taxpayers pay their share of taxes, the CS, National Treasury, and Economic Planning hereby revokes the approval by the (former) CS of June 19, 2019, on the exemption from CGT on the instruments executed in the transfer of assets and liabilities relating to the merger of NIC Group Plc and Commercial Bank of Africa and communicated to the Commissioner-General, KRA on June 21, 2019.

“In this case, the June 21, 2019 letter is also revoked and KRA is advised to proceed to collect the appropriate taxes due from the NCBA,” Prof Ndung’u wrote to Ms Simiyu.

The letter followed an earlier correspondence from KRA, which had on March 16 written to Treasury Principal Secretary Chris Kiptoo, seeking a review of the 2019 exemption, on concerns of public interest in the transaction.

“The KRA Board of Directors during its special meeting held on March 2, 2023, resolved that the exemption of NCBA transaction from CGT be referred back to the National Treasury for consideration to determine whether there was any demonstrable public interest in the transaction which enabled the minister to exercise his discretion of exemption from CGT in favour of NCBA,” the letter by Ms Simiyu stated.

But in a rebuttal last week, Mr Gachora, the NCBA Group MD, faulted Treasury for not providing grounds for revocation and failing to involve the lender before making the decision.