London Distillers fails to halt KRA Sh517m tax demand
Alcohol manufacturer London Distillers (K) Limited has failed in its bid to stop the taxman from demanding payment of taxes amounting to Sh517 million, which had been waived by the National Treasury Cabinet Secretary in January 2022.
The distiller is staring at difficult times ahead as it had told the court that its business may be crippled and bank accounts frozen should the Kenya Revenue Authority enforce the tax demand of Sh517,118,680.
It wanted the court to suspend enforcement of a judgment that annulled a Treasury directive offering the company a tax compromise that would have seen it pay Sh80 million out of a Sh517 million tax claim.
Pleading with the court to suspend the decision of the KRA to demand the tax, the distiller told Justice Alfred Mabeya that payment of the sums would make its business remain indefinitely paralyzed.
It added that it would be left unable to meet its financial obligations towards employees, customers, and banks if KRA enforces the demand.
Additionally, it argued that it would be exposed to insolvency proceedings and other multiple suits arising from the breach of its contractual obligations with third parties.
Through its representative Mohan Galot, the distiller wanted the court to stay the judgment pending appeal and offered to deposit any security.
But Justice Mabeya dismissed the request and ruled that the disputed judgment was incapable of being stayed because it only endorsed KRA’s demand.
Lawful
In the ruling dated September 16, 2022, the judge found that the KRA’s decision of demanding payment of the sum was lawful and not illegal, irrational, or un-procedural.
“The court is alive to the fact that these are admitted taxes being demanded. The nature of these admitted taxes militates against the notion of substantial loss. The monies constitute Excise and VAT that London Distillers collected from taxpayers and never remitted to the respondent. Then the Cabinet Secretary purported to waive the same,” said Justice Mabeya.
He ruled that the request by the company was un-meritorious.
In the ruling that the distiller intends to appeal against, the court stated that it was illegal for Treasury CS to grant the company's request for lower taxes since only the Commissioner can invoke the provision for tax to be abandoned.
The court dismissed the Treasury’s directive abandoning taxes as per section 37 of the Tax Procedures Act allowing the company to pay only 20 per cent of tax arrears or Sh80 million.
The judge said Treasury had overstepped its mandate and abused its power by granting the tax compromise.
“Treasury had no business to purport to allow the abandonment of 80 per cent of the admitted taxes. That was extreme abuse of power on the part of Treasury,” the judge said.
The court heard that London Distillers failed to remit taxes after a self-assessment of January 2020 to August 2021 tax returns.
LDK attempted to negotiate with the KRA before seeking intervention from Treasury.
Treasury CS issued a directive allowing the company to pay only 20 per cent of tax arrears or Sh80 million that initially went uncontested by the taxman. The chairman of the firm Mohan Galot said he wrote to the CS Treasury on September 15, 2021, seeking a waiver of the amount.
The application was allowed and 80 per cent of the principal amount was abandoned and the Treasury waived 100 per cent of penalties and interest.
KRA made an about-turn and demanded full taxes within a week prompting LDK to sue to block KRA from demanding the entire amount and instead compel the taxman to accept payment of Sh80 million.
The judge said the Treasury purported to exercise a power it did not have. He also defended the KRA saying it did not act maliciously by rescinding the Treasury’s decision. BY DAILY NATION
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