Billionaire Kirima’s firm locked in rental income tax row

Kirima, who died in 2010, was one of the wealthiest property magnates, leaving behind an estate valued at nearly Sh2 billion, including prime commercial and residential properties, extensive landholdings, company shareholdings, and investments that have been the subject of prolonged succession litigation.

He served as Starehe MP and Assistant Minister for Public Works during the late President Daniel Moi’s administration. He was also a Nairobi City Councillor before building one of the country's largest private property empires.

The taxation dispute stems from additional income tax assessments covering the 2019 to 2023 tax years.

The tribunal, chaired by Robert Mutuma, ordered the company to produce original or certified supporting records within 30 days and directed KRA to issue a fresh objection decision within 60 days after receiving the documents.

“The just course, and the one that best serves the object of tax dispute resolution as envisioned in the Tax Procedures Act of ensuring assessments are made on complete information, is to remit the matter to the respondent for an informed objection decision to be made after its sight of the outstanding records,” said the tribunal.

The tax dispute arose after KRA reviewed the company's income tax declarations and disallowed deductions claimed for repairs, maintenance and security costs incurred on rental properties.

The authority subsequently confirmed additional income tax assessments amounting to Sh52.8 million after concluding the company had failed to provide documents supporting the claimed expenses.

Kirima & Sons challenged the assessment, arguing that the disputed costs were genuine business expenses incurred to maintain ageing residential properties and provide security for tenants.

It maintained that the records could not be accessed because prolonged succession disputes following Kirima's death disrupted the company's governance and custody of its documents.

"The properties are of age and required major repairs to continue to make them habitable and competitive," the company told the tribunal. It added that "it is the responsibility of the landlord to provide security to the tenants through hiring of security guards for day and night."

The company said that newly appointed administrators of Kirima's estate had written to previous administrators seeking bank statements, expense schedules, invoices, receipts, contracts and property records covering 2019 to 2024 to support the disputed deductions.

KRA opposed the appeal, arguing that the company repeatedly failed to comply with statutory requirements despite being given several opportunities to do so during the verification and objection process.

The tax authority said the objection lodged through the iTax system lacked both supporting grounds and documentary evidence.

"It is now evident that the appellant is attempting to cure its non-compliance at the appeal stage by submitting new factual allegations and attaching documents that were not part of the objection process," KRA argued.

The Commissioner further maintained that "the burden of proof lies with the taxpayer, and in this case, the appellant has failed to discharge this legal burden both factually and procedurally."

The tribunal agreed that taxpayers must keep adequate business records and observed that Kirima & Sons had not produced documents proving the disputed expenditure either before KRA or during the appeal.

"It is common ground, and admitted by the appellant, that no documents substantiating the disallowed repair and maintenance, and security expenses were furnished to the respondent at any stage," the tribunal said.

However, it found that the company's explanation for failing to access the records was supported by court documents appointing new estate administrators and correspondence requesting the missing records from previous administrators.

"The tribunal finds the appellant's explanation for its inability to produce the outstanding records plausible," the tribunal ruled.

It said the explanation was "corroborated by a court-issued grant of letters of administration and by contemporaneous correspondence."

The tribunal held that KRA was entitled to issue a best-judgment assessment based on the information available at the time.

It nevertheless concluded that the objection decision should be reconsidered after the company produces the outstanding records, allowing the Commissioner to make a fresh determination on a complete evidentiary record.

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