The High Court has backed a Sh113 million tax claim by the Kenya Revenue Authority (KRA) against a trader and grain importer after an audit revealed unremitted dues.
Justice Francis Gikonyo found that the additional tax assessment conducted by the Commissioner of Domestic Taxes on FAHD Commodities Group in 2022 was proper and justified.
The assessment covered September 2017 and August 2022, where the Commissioner is said to have established suppressed sugar sales and inconsistencies in exempt sales. The basis of the additional assessments was variances between the sales declared as per income tax and VAT returns vis-Ã -vis the information derived from import and customs data.
The company had challenged the decision of the taxman to slap it with a demand of Sh113.4 million in the form of VAT and Corporation tax after additional assessment for the inconsistent variances.
The company, which imports and trades commodities, including wheat bran, maize, and sugar, suffered a setback after the tribunal upheld the taxman's decision last year and the same has been upheld by the High Court.
"Given the commissioner’s power to amend an original assessment, to issue an additional assessment to ensure that the taxpayer pays the correct amount of tax, I find that the Tribunal did not err in upholding the Commissioner’s assessment for the sugar sale for December 2017 in 2022," said Justice Gikonyo.
The court found that the company did not explain the discrepancies or prove that the assessments were wrong. From a review of the record, the judge said there was no evidence by the company to explain the discrepancies.
For instance, the invoice issued by the company to ABC Trading LLC for a service fee had glaring discrepancies where the amounts in figures were different from the amount in words for all the invoices provided for review. The company failed to explain the discrepancies.
There were discrepancies in the total number of metric tonnes exported by the company in 2021 as per the customs data. The company is alleged to have exported 3,066 tonnes as compared to 58,319 tonnes as per the customs data.
It was also noted that the company failed to dislodge KRA’s assertion that it received Sh112 million in its bank account as no explanations were provided to explain or account for the funds.
In challenging the findings of the tax assessment, the company argued that it ceased trading briefly in 2017 and 2019 after incurring losses on maize importation.
The court heard that in July 2021 the company was appointed by ABS Trading LLC, an entity registered in the UAE, as an agent for the procurement and repackaging of wheat bran for foreign customers. It charged management and service fees only because the appointing entity did not have an establishment in Kenya.
In November 2022, the taxman issued the company with a notice of assessment totalling Sh81.3 million, comprising principal value-added tax (VAT) and corporation tax.
Upon the company objecting and providing further information and documents, KRA rendered its decision confirming VAT and corporation tax totalling Sh113.4 million, comprising principal tax, penalties and interest.
However, Justice Gikonyo said from the perusal of the record, there was no evidence to support the agency relationship between the company and ABC Trading LLC.
"There was no reasonable explanation proffered by the appellant regarding the discrepancies uncovered by the commissioner in the invoice issued to ABC Trading LLC for the service fee or the receipt of the funds into its NCBA bank account," said the judge.
The company stated that it was incorporated to import and locally trade in food commodities and supply to local customers after the arrival of supplies in Kenya and upon clearance for entry by the KRA.
