KRA FINDS KSH3.8 BILLION IN A HARDWARE

The Kenya Revenue Authority (KRA) has won a Sh3.8 billion tax dispute against a supplier after the High Court rejected a bid by the taxpayer to overturn the demand made in 2017.

Justice Alfred Mabeya rejected the appeal by Nakuru Cement Supplies Ltd to overturn the tax demand, saying the firm was given time to table evidence supporting claims that it had paid the tax.

Evidence tabled in court was that the KRA investigated the firm and noticed that it had not filed returns from 2011 to 2015.

The taxman then gave the company time to file the returns, even though it was late.

Upon filing, the KRA noticed inconsistencies and demanded clarification but it was not forthcoming.

The KRA then sourced information from suppliers to the firm and concluded that the firm did not file returns for the said period.

The taxman then raised a tax assessment of Sh3.83 billion for corporate tax and VAT.

“From the foregoing, it is evident that the appellant was given a reasonable opportunity to present its case. The appellant (Nakuru Cement Supplies Ltd) being the custodian of the necessary documents, was required by law under Section 58 of the Tax Procedures Act 2015 to keep records and submit them to the commissioner if and when called upon to do so,” the judge said.

The Tax Procedures Act allows the KRA to seek taxpayer information and business transactions from third parties such as suppliers, vendors, purchasers and other individuals in its bid to nab tax cheats.

The taxman is also allowed by law to search the premises of taxpayers and third parties and seize goods, records and documents and gather such other information that may assist in establishing the taxes payable by particular taxpayers and aiding tax fraud investigations.

The KRA said investigations on the company were caused by the firm’s failure to file tax returns for the said period.

The investigations allegedly revealed that the supplier had been receiving bonuses and discounts which were not accounted for.

Further, the purchase data received from the suppliers showed that the company had been overstating the purchases in the financial account, thereby reducing its tax liability.

Despite the law requiring the taxpayers to keep records, the taxman said the firm withheld records which in turn forced the KRA to source them from Nakuru Cement Supplies Ltd.

The KRA told the court that the burden of proving the incorrectness of a tax assessment lies with the taxpayer.

The firm was accused of acquiring data from third parties in coming up with its assessment and failing to share it with the same company.

While obtaining third-party information, the taxman can conduct tax inspection and investigations, interview witnesses, execute search warrants, intercept and seize and even detain goods, where taxes have not been paid or are suspected not to have been paid.

The taxman also has the power to conduct surveillance on the taxpayer’s business premises, residences, tax agents’ premises, third parties and other premises as may be necessary.

The Nakuru firm also claimed that it was not given an opportunity to examine the veracity of the information acquired from third parties.

It also argued that the assessment of the taxes was communicated by the commissioner of investigations and reinforcement on August 14, 2017, which was outside the reporting period of five years.

Nakuru Cement Supplies also faulted the tax appeals tribunal, which upheld KRA’s assessment.

The tribunal had also ruled that the firm was accorded an opportunity to present its case to the KRA.

“From the chronology of events as set out above, I find no error in the Tribunal’s holding that the appellant was accorded a fair hearing,” the judge ruled.

The judge also stated that the period of five years started to run from the date the company submitted its returns and not from 2011 when it had deliberately failed to submit the same.

“If that were the case, a taxpayer will fraudulently evade tax by failing to submit his returns with the hope that the tax authorities will not catch up with him until after five years,” the judge said.