Airline takes on KRA over Sh1b tax demand

Kenya Revenue Authority (KRA) headquarters, Times Tower, Nairobi. [Jenipher Wachie, Standard]

An aviation company is contesting a Sh1.08 billion tax demand by the Kenya Revenue Authority (KRA).

Bluebird Aviation Ltd has sued the taxman for allegedly issuing illegal agency notices to its bank on January 25 this year.

An agency notice allows KRA to collect tax from a person who owes money to a defaulting taxpayer.

Such notices are commonly issued by KRA to banks holding deposits on behalf of a taxpayer and result in the bank freezing such funds.

According to Bluebird's lawyer Roger Sagana, the firm has been diligently paying its dues to the taxman and currently has a tax credit worth Sh539 million.

Bluebird in court papers filed before Commercial Court judge Alfred Mabeya says the notices have paralysed its business, arguing that KRA jumped the gun as it never sought alternative mechanisms to resolve the issue.

"The said agency notices infringe on the ex-parte applicant's constitutional right to property and statutory right to exhaustion of dispute resolution remedies provided under section 51 to 54 of the tax procedures Act, thus the respondent's action is unconstitutional, ultra vires, illogical and illegal," says Mr Sagana.

The Wilson-Airport regional airline further argues that the taxman ought to have given it a fair hearing before issuing the agency notices.

"The respondent acted in abuse of its authority when it failed to accord the ex-parte applicant an opportunity to be heard in blatant violation of its constitutional and statutory rights to be treated equally before the law. It [KRA's action] was arbitrary, an abuse of power, misuse of authority, and grossly unfair and it is contrary to the rules of natural justice."

Bluebird Director Col (Rtd) Hussein Ahmed in his supporting affidavit says since the firm was established in 1992, it has always paid its taxes.

According to Mr Ahmed, KRA has also regularly carried out audits on Bluebird's tax affairs and there were no unresolved disputes or arrears.

He argued that Bluebird does not owe KRA any tax, instead, it is Kenya's Caesar who owes it Sh539 million in rebate.

"The company has over the years applied for and has been issued with tax compliance certificates, most recently on December 10, 2021, which the company believes is evidence of compliance with tax directives by remitting, all required taxes," says Mr Ahmed.

On January 26 this year, the company received through its email address agency notices dated January 25 addressed to the company's bankers directing it to pay KRA Sh1.08 billion being tax due.

According to Mr Ahmed, the authority allowed the company to lodge an objection against the tax demand but the issue has never been resolved.

"The effect of the agency notices dated January 25, 2022, addressed to the company's bankers is that the defendant will imminently clean out the company's accounts, thereby crippling the company's business by having several cheques dishonoured, cancellation of credit facilities and loss of business... in fact, allowing the decision to stand will cause the company to be adjudged bankrupt in light of the colossal sum claimed by the defendant."