Blow to taxman as High Court orders Eldoret Grains not to pay Sh500m

Grain miller Eldoret Grains Ltd will not pay a fine of more than Sh500 million that had been slapped on it for failure to remit taxes for five years, at least for now.

This is after the High Court ordered that it should not pay the monies, being the additional taxes for the year 2005 to 2010 that had been slapped on it by the taxman. 

High Court Judge Weldon Korir, in his ruling, said the company was not given the chance to respond to the claims raised by a former employee that it was stashing undeclared earnings and without any reference to two bank accounts.

However, the company is not yet off the hook as the Judge ruled that the claims should be heard afresh by the new committee on taxes. This time, it should consist of different members from those who had ruled that it should pay.

In the case, an employee who had worked for the company for 10 years and was later sacked, spilled the beans to commissioner of investigations and enforcement about the plot that saw the monies that escaped the taxman being hoarded on his own accounts.

The informer, Mr Ibrahim Magonga Ratemo, confessed that his two accounts with KCB, Eldoret branch were being used to execute the schemes. What would happen is that the company made fictitious purchases from non-existent farmers, in effect inflating the production costs and under-reporting profits.

According to Ratemo, the names of real and genuine farmers were being used but the payments meant for the farmers would end up in the pockets of the applicant’s directors. Following information on alleged tax evasion by the company, the court heard that the commissioner conducted investigations and found that the largest maize miller in the North Rift region had a poor tax compliance history.

ACCOUNTING MALPRACTICES

The commissioner deposed that the information which was received in November, 2011, implicated the company together with some of its directors and managers in accounting malpractices which led to massive tax evasion. According to the records before the court, the information indicated that sales proceeds were being deposited in employees’ personal bank accounts leading to non-payment of taxes on the sales proceeds.

“At stake was a tax claim of more than Sh500 million. That tax assessment had been arrived at based on information received from a sacked employee. There are many reasons that can make an employee to give false information against the former employer,” Justice Korir said.

The investigations also revealed that the Operations Manager, one Mohammed Omar Bajoh, was a signatory to one of the accounts held by Mr Magonga, a fact which he admitted but proceeded to deny that the money in the account belonged to the company.

The company was asked through a letter dated December 6, 2011, to explain but the same was not given on time. “Whether the information was given in good faith is also in question. Why didn’t the employee give this information during his employment? The applicant was indeed entitled to respond to case,” Justice Korir ruled.

In response, the maize milling company denied the allegations but the committee on tax nevertheless slapped it with a bill of Sh567, 920 538.89 being additional taxes for the five years. According to the defence by the company’s Managing Director Swaleh Ahmed Taib, the information given by Moganga was given out of spite and malice.

He argued in support of the case that the rules of natural justice were violated as Eldoret Grains was not immediately informed of the allegations it was facing. He asserted that the informant was a disgruntled employee who had worked for them for 10 years and had been dismissed from employment owing to misappropriation of funds.