Businessman ordered to pay KRA Sh417 million in disputed tax case

A tax tribunal has ordered businessman Rupen Mulchand Haria to pay Kenya Revenue Authority (KRA) Sh417 million in taxes.

The tax man had assessed Haria’s undeclared taxes to be Sh286 million, however, correspondence between them saw the figure rise to Sh417 million inclusive of a Sh19 million penalty.

The assessment was on the basis that Capital Gains Tax (CGT) should be paid at 15 per cent and not 5 per cent as Haria had done.

The businessman has shares in Harleys Limited, ="https://www.standardmedia.co.ke/article/2001290730/how-tanzania-tycoons-misled-oriental-into-half-hearted-marriage">a drugs distribution company< registered in Kenya and operates throughout East Africa.

In his defense, he said that the transfer relied upon by the tax man to come up with the estimate happened in 2022 and not 2023. At the time of the transfer, the CGT was charged at 5 per cent not 15 per cent, which came into effect in 2023.

According to Haria, KRA failed to appreciate that transactions between Westlands Height Limited, incorporated in Mauritius, and another company IBL Limited are independent of the transaction relating to taxes paid.

He said that his company Harleys Limited and Westlands Heights Limited are two separate legal entities.

He faulted KRA for not interpreting tax ambiguities to him during the assessment and denied violating any tax laws.

KRA in their defence said that Haria’s company, Harley Limited began restructuring in 2021 and a subsequent company known as Westlands Heights Limited incorporated in Mauritius was opened.

From the transaction, they said that Haria assessed taxes to be paid and ensured all instruments were lodged with various government agencies and remitted statutory payments in compliance with laws.

Some of the payments he made included tax which was remitted on December 30, 2022.

The taxman said that their estimates are independent of subsequent transactions between Westlands Heights and IBL Limited and any of its subsidiaries. From their investigations of Haria’s transactions, they raised a Sh286 million tax fee.

According to KRA, Haria was construing Harleys Limited and Westlands Limited as the same yet they are two legal entities.

The businessman told the tribunal that KRA was relying on communication with a third-party IBL Limited, which was not a party to the transaction.

From this error, ="https://www.standardmedia.co.ke/business/business/article/2001489935/tribunal-directs-seven-seas-to-pay-kra-sh900m#google_vignette">he said that KRA assumed< that the transaction happened in 2023 yet he made all statutory payments in December 2022 including Sh130 million in CGT.

Haria averred that KRA assumed that the transfer instrument was executed on January 4, 2023, and relied on different communication between a third party, IBL Limited, without considering that in Kenya tax is payable after self-assessment and declaration by a taxpayer.

He denied that when Harleys began its restructuring process the management held discussions on transactions which led to the opening of a subsequent company.

He said that Harleys and himself were following a board resolution that required a transfer of shares to a holding company incorporated in Mauritius to facilitate restructuring.

He said his appeal was based on the transfer of the 5.9 million shares at Sh3.6 billion to the holding company.

The taxman told the tribunal that Haria had failed to produce a sale agreement, documents in support of the net adjusted cost of Sh296 million, and a share transfer instrument executed in the name of the purchaser.