The Kenya Revenue Authority (KRA) has won a Sh9.3 billion tax case against Paleah Stores Limited in a judgment delivered Wednesday by the Tax Appeals Tribunal.
The amount constitutes Sh1.36 billion corporation tax and Sh7.9 billion 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.
The firm 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 the company by KRA for the years of income 2008 to 2014.
Based on Paleah Stores Limited’s appeal, the Tribunal framed three issues for determination.
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.
The banking method revealed that Paleah Stores Limited had undeclared income tax and VAT which 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 2008to 2014 years of income were excessive,” the Tribunal said.
It added that from the foregoing, the respondent did not err in law and fact by issuing additional income tax assessments on the appellant.
Moreover, VAT in Kenya operates on a monthly self – assessment basis whereby the output is set off against input such that where output tax is greater than input ta, 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.
The Tribunal also observed that the company failed to specify the exact nature of unfairness as alleged.
“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.