KENYA REVENUE AUTHORITY WINS OVER 9B TAX CASE

Kenya Revenue Authority wins 9.3 Bn tax case

By Samuel Migele

The Kenya Revenue Authority (KRA) has won a Kshs 9.3 billion tax case

against Paleah Stores Limited in a judgment delivered on 22nd January

2021 by the Tax Appeals Tribunal.

The amount constitutes of Kshs 1, 361, 746,295 corporation tax and Kshs

7,891,387,842 in value added tax inclusive of interest and penalties.

Paleah Stores Limited had appealed to the Tribunal in May 2017

contesting assessment and demand of the taxes by the KRA for the years

of income 2008 to 2014.

Paleah Stores Limited admitted in its statement of facts before the

Tribunal that it was a victim of bad professional advice leading to its

accounts and tax returns not reflecting the correct position of its

operations for the stated years. It however contested the tax

assessments on the grounds that KRA did not consider its input tax

claims, operational expenses and that the computation of the taxes was

unfair. The tax assessments and demands arose out of an investigation

and a tax audit carried out on Paleah Stores Limited by KRA for the

years of income 2008 to 2014. Based on Paleah Stores Limited’s appeal,

the Tribunal framed three issues for determination.

First, the law in Kenya is that tax assessments are based on self-

assessment. The Tribunal observed that Paleah Stores Limited had not

complied with its statutory obligations of keeping proper records for

purposes of computing tax. This necessitated KRA to obtain information

from third parties such as Paleah Stores’ suppliers and bankers. In its

statement of facts to the Tribunal, Paleah Stores Ltd stated as

follows; “In absence of complete records, the Appellant and the

Respondent agreed to use the Banking Method to compute income for

corporation tax, sales for output tax and purchases for input VAT.”

The banking method revealed that Paleah Stores Limited had undeclared

income tax and VAT which it failed to prove that it was excessive. “In

the instant case, the appellant has not proved to the satisfaction of

the Tribunal that the respondent’s additional income tax assessments

for 2008 to 2014 years of income were excessive. From the foregoing,

the Tribunal is of the considered view that the Respondent did not err

in law and fact by issuing additional income tax assessments on the

appellant…,” the Tribunal held.

Secondly, VAT in Kenya operates on a monthly self – assessment basis

whereby output VAT is set off against input VAT such that where output

tax is greater than input tax, tax liability arises and is payable.

Paleah Stores Limited in its statement of facts admitted that it did

not keep proper VAT records. The company did not contest that it made

its VAT claims outside the allowed statutory periods. Based on the

computations, Paleah Stores Limited’s entire claim for input VAT was

disallowed.

Thirdly, Paleah Stores Limited alleged unfair administrative action by

KRA. The Tribunal observed that the company failed to specify the exact

nature of unfairness as alleged. KRA demonstrated that all procedural

requirements. In the eyes of the Tribunal and based on evidence, KRA

adequately lived up to its mandate and did not act unfairly. “The

Appellant…was expected to provide cogent evidence of unfairness meted

out by the Respondent and not merely casting aspersions of purported

procedural unfairness,” the Tribunal held. The upshot is that the

Tribunal found the appeal by Paleah Stores Limited unmerited and

dismissed it.