Business

By Fred Kagonye | 5 hours ago

The Kenya Revenue Authority (KRA) has failed to convince the High Court to order a gas company to pay Sh400 million in taxes.

KRA had appealed a tribunal decision that found that it did not prove fraud allegations against City Gas East Africa to warrant the award.

In his judgment, Justice Alfred Mabeya said that he found no reason to interfere with the tribunal decision.

“In view of the foregoing, this court finds no merit in the appeal, and the same is hereby dismissed. The judgment of the Tribunal delivered on 17/3/2023 is hereby upheld. I make no order as to costs,” ruled Justice Mabeya.

KRA told the tribunal that in their assessments between 2010 and 2019, they found that the gas company had a variance of about Sh3 billion between income and bank sales.

This the taxman said translated to about Sh900 million in corporate tax.

After engagements, the company was told that it owed about Sh400 million in taxes which they objected to in a May 25, 2021 letter but their pleas were not headed to by the taxman.

They then filed an appeal at the tribunal which ruled in their favour on May 12, 2023.

In their appeal, The Liquified Petroleum Gas (LPG) company argued that the KRA agents who objected to their appeal should have been different from the ones who handled the investigations.

The company argued that KRA assessed without regard to principles of fairness and equity.

The company said that KRA agents raided their premises and confiscated documents, records, and equipment in a bid to ascertain the taxable income.

From the incident, the taxman gave them their investigation findings to which they responded.

KRA said that they found that there was a significant variance between City Gas sales contained in the primary documents.

KRA claimed that the company had treated Sh89 million as unreported sales.

“The burden was therefore on the appellant (KRA) to prove that the documents obtained from the respondent (City Gas) demonstrated the existence of fraud,” said Justice Mabeya.

City Gas argued that KRA made assessments on tax periods outside the statutory timelines which were based on an exaggerated average selling process obtained from the Energy and Petroleum Regulatory Authority (Epra).

They added that the taxman did not consider the expenses they incurred, the taxes paid, or the returns already filed.

The gas company further argued that KRA had not proven that the fraud was beyond the five years arguing that they only relied on annual indicative sales they allegedly got from Epra.

At the tribunal, KRA said they got annual indicative sales amounts from Epra to determine the quantities and purchase cost of LPG transacted and computed the estimated revenue for 2016 to 2018.

In their defence, the company said that KRA ignored the primary data they had provided and instead used purchased data which they treated as sales while ignoring actual sales.

City Gas agrued that the taxman came up with a figure obtained from Epra records and ignored the wear and tear.

They said that they are only required to keep tax records for five years which KRA should probe but the judge noted that the taxman can extend the probe period to more than five years in the event of fraud.

KRA argued that Epra does not regulate the price of LPG but petroleum prices.

City Gas faulted the tax man for failing to elaborate why they ignored the sales provided and information given by their customers.