A tax tribunal has directed Monarch Insurance Company to pay Kenya Revenue Authority (KRA) Sh27.1 million on behalf of its client Alicia Freighters Limited.
The taxman did an audit on its Simba System and during the reconciliation process, it noted that the company had an outstanding unaccounted security body of Sh27.1 million.
KRA wrote to Alicia on July 27, 2023, seeking to have the balance cleared within 14 days.
After Alicia failed to respond to the letter, the tax man wrote a reminder on August 29, which they did not respond.
KRA says they invoked the East African Community Customs and Management Act (EACCMA) to demand the duty from the insurance company that was Alicia’s guarantor.
After notifying Monarch, they wrote back seeking more information to enable them to process the demand and after receiving it, they called for more time to settle it.
KRA gave them 14 days and later added seven days after turning down a 30-day request from the insurance company.
Monarch said the time given was not sufficient to address the demand and filed an appeal at the tribunal.
At the tribunal, they said that KRA failed to respond to any issues that they raised among them, why they were never included in the copy demands issued to Alicia.
They argued that the requirement to provide information is a requirement in the EACCMA and is a constitutional mandate in the right to fair administrative action.
Monarch faulted KRA for not going after Alicia before coming to them and that the taxman failed to show efforts undertaken to pursue the company which allowed them to escape and deflect duties to them.
According to Monarch, KRA was aware that Alicia had failed to account for import duties after the expiry of customs security bonds and that it took them a decade to demand them due to bond performance.
They argued that had KRA acted diligently and pursued Alicia upon the expiry of the bond’s lifetime then the taxman would have recovered the outstanding import duties due to the government.
Monarch said that the security bonds executed with various clearing and forwarding agents were valid for a maximum period of three years.
They said that KRA was bound by the three-year validity clause in the bonds and should not therefore seek securities beyond the periods stipulated.
The insurance company said that their contractual obligations with Alicia were automatically terminated when the validity expired.
They termed KRA’s demand illegal since it sought to get paid for “an expired and unenforceable customs security bond”.
Monarch said that KRA should exercise its powers in a manner that does not violate the right to fair administrative action and follow the law.
KRA said that Monarch was contesting the time they had to respond to the demand and not the demand itself.
The taxman added that Monarch could only come to the tribunal seeking to handle a tax decision arising from a review application that had not yet crystallized.
They said that the insurance company had not exhausted all the dispute resolution mechanisms as provided for in EACCMA.
According to KRA, there was nothing unreasonable, unfair, or unjust in demanding accountability of outstanding bonds within 14 days, which is a statutory requirement.
They said they went ahead and granted them more time to comply.
In its defence of not going after Alicia, KRA said that it had done all it could to get the company to pay and when its efforts were unsuccessful, it now went after Monarch.
They argued that Monarch had a duty to ensure that the goods imported left the country within 30 as required in the approval.
They dismissed Monarch’s claim that they were pursuing an expired bond, saying that it had not been tabled for the tribunal to make its own decision.
According to the taxman, Monarch had not disputed whether the taxes were due or not but sought more time to check its records and do a follow-up with Alicia.
In their final submissions, KRA said it cannot be stopped from performing its statutory duty of collecting taxes based on legitimate expectations.
In its decision, the tribunal said it had jurisdiction to determine the matter.
“The decision appealed against is a proper decision as per the law and consequently the Tribunal has jurisdiction to deal with the same.”
They said that the KRA demand was justified and upheld it, dismissing Monarch’s appeal
