Embu Trader Loses Sh9.3B Tax Battle with KRA

by Lawyer Alex
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The Kenya Revenue Authority (KRA) has won a Sh9.3 billion tax dispute with a supplier of building materials and food products after a tribunal ruled in its favour.

Paleah Stores Ltd, a business ran by a man and his wife in Embu, lost the battle to the taxman after a five-member Tax Appeals Tribunal ruled that KRA’s demand was not excessive as claimed.

“From the foregoing, the tribunal is of the considered view that the respondent (KRA) did not err in law and fact by issuing additional income tax assessments on the appellant (Paleah) for the years of income 2008 to 2014,” the tribunal chaired by Josephine Maangi said.

Court documents show that the wholesale trader deals in building materials such as sand, cement, iron sheets as well as food products including sugar and rice.

KRA said, following a tip off that the trader was evading taxes, it carried out an analysis of the company’s business between 2008 and 2014 in respect of corporation tax and value added tax (VAT).

The taxman then demanded Sh1.3 billion of corporation tax and Sh7.89 billion in VAT, plus interest and penalties.

The trader, however, disputed the tax assessment saying its own computation of tax payable for the said period was Sh34.8 million.

Paleah argued that the corporation tax was ill advised, malicious and irrational as the taxman failed to consider its Sh1.58 billion operating expenses.

Further, the couple said the task of collecting taxes should not discourage taxpayers from carrying on with their business.

At the hearing, the company admitted that with hindsight, it regrettably realised that it had been a victim of bad professional advice to the extent that the accounts and tax returns submitted did not reflect the real position of its operations.

The taxman said it used information sourced from the trader’s bankers and suppliers to carry out its tax assessment, an alternative backed by law.

According to KRA, its audit revealed additional tax owed amounting to Sh4.9 billion and Sh1.5 billion for VAT and corporation tax, respectively, for the period under review.

But Paleah disputed the income and sales numbers used in the computation, saying the tax bill it was slapped with was incorrect and excessive and that KRA declined to accept its gross profit rates based on sample actual invoices it provided.

The tribunal said the trader should have provided cogent evidence of unfairness meted by KRA and not merely cast aspersions of purported procedural unfairness.

It further noted that Paleah had been afforded an opportunity to present its case to KRA through various meetings hence it cannot claim unfairness.

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