KRA wins Sh517m tax battle with alcohol firm
London Distillers Kenya (LDK) will have to pay Sh517 million tax claim in full or re-enter negotiations with Kenya Revenue Authority (KRA) after a high court annulled the manufacturer’s application that would have allowed it to settle only 20 per cent or Sh80 million of the amount.
High court ruled that the 80 per cent tax abandonment nod that LDK received from the National Treasury was illegal since only KRA’s Commissioner General can give such a directive, noting that it was an overstep of the role. The manufacturer had previously attempted negotiation with KRA on tax abandonment but it flopped, forcing it to seek reprieve from the National Treasury.
“Only the Commissioner could initiate the process of [tax] abandonment… that the Treasury lacked the power to initiate the abandonment of taxes. Finally, that the letter from Treasury did not create any legitimate expectation on the ex-parte applicant as it was based on an illegality,” Justice Alfred Mabeya ruled.
Treasury’s waiver
The ruling, which also dismissed the Treasury’s waiver of 100 perc ent of penalties and interest, was based on section 37 of the Tax Procedures Act, which allows only the Commissioner General to determine any application for tax waivers.
Office of the Attorney General also wrote to the Treasury on the legality of the matter and the procedure for abandonment of taxes. The court was told that LDK failed to remit the said taxes after a self-assessment of January 2020 to August 2021 tax returns.
The complication of the tax duel between LDK and KRA emerged after the latter initially, via email, acknowledged and did not contest Treasury’s decision that allowed the manufacturer to only pay 20 per cent or Sh80 million of the tax arrears.
The two parties further agreed the settlement of the said amount by weekly installment of Sh7.5 million beginning February 2022, and was to run until April this year. By the time the case was filed, the distiller had paid Sh55 million as part of the agreement. However, upon consultation with the office of the Attorney General, KRA made a U-turn after a month, demanding full taxes within a week, prompting LDK to sue and instead asked the taxman to be compelled to accept only Sh80 million tax.
