Why Kenha declined to release Sh3.6 billion to Israeli roads contractor

Stalled Kisumu-Kakamega road construction at Mamboleo junction that was initially being constructed by Solel Boneh International (SBI) company. [Collins Oduor, Standard]

The taxman directed Kenya National Highways Authority (Kenha) to hold money that was to be released to an Israeli roads contractor, it has emerged.

But in an interesting twist after two years in court, the High Court now wants Kenha to release the money to SBI Holdings Kenya.

Court details seen by The Standard show that Kenya Revenue Authority (KRA) on December 23, 2021, wrote to the Kenha managing director asking him to freeze Sh607 million.

This was in a tax dispute between KRA and roads contractor Solel Boneh International Holdings (SBI Holdings Kenya).

However, the taxman immediately cancelled the first notice of Sh607 million and instead asked Kenha not to release Sh3.6 billion.

Tax dispute

Out of the amount, KRA was claiming Sh2.8 billion income tax from SBI and a further Sh800 million as VAT.

The correspondence between KRA and Kenha is contained in a court battle between the roads agency and SBI Holdings Kenya.

In the case whose judgment was delivered on September 23, Justice Jairus Ngaah said Kenha should have let KRA and SBI to settle their tax issues.

“It must be understood that as much as there is dispute over tax or taxes due to the interested party (KRA) from the applicant, the latter holds a valid decree in its favour against the respondent. It is not for the respondent to determine how the tax or taxes, if due, will be paid; that is a question between the applicant and the interested party,” said Justice Ngaah.

SBI had been contracted by Kenha to construct the Kisumu to Mamboleo Junction Road in 2016. However, the Israeli company terminated the contract citing non-payment and moved to court to seek legal redress. The road has since been completed. The project was being partly financed by the government and the World Bank.

In its case, Kenha argued that the project was delayed owing to inaccessibility of the site.

It also claimed that World Bank funds were depleted and it did not have money from the government.

SBI terminated its contract due to delayed payment and commenced a court battle with the agency.

When the court directed Kenha to pay, KRA came knocking, seeking tax that was to be paid by SBI.

However, Tax Appeals Tribunal intervened, but KRA moved to the High Court to freeze the accounts.

It emerged that KRA settled with SBI on payment but did not inform Kenha that it had agreed with the firm.

In its case, SBI argued that it had honoured its part of bargain but Kenha disputed the payment. 

An arbitrator, John Papworth of Shapwick, heard the dispute where Kenha was ordered to pay SBI within 14 days.

When SBI moved to the High Court, Kenha failed to file a response in time arguing that the court’s ruling was uploaded to the e-filing system instead of being emailed.

It had urged the court to suspend hearing all the files and allow it to file its defence. However, Justice John Mativo (now a Court of Appeal judge) rejected Kenha’s application.

In the meantime, in 2020, SBI moved to the High Court in relation to the Sh774 million pay from the authority. 

The court allowed its case on October 1, 2021, and ordered Kenha to pay an additional Sh7.4 million as costs of the case. In the end, Kenha was to pay SBI Sh782 million.

SBI sought to have Kenha settle payment, but Kenha argued it could not release the money owing to a KRA dispute on how much tax was to be paid.

The Israeli firm went back to Justice Ngaah, seeking to compel Kenha to obey the orders by remitting the money within seven days.

In its case, SBI argued that despite having a favourable judgment, Kenha had failed to make good the payment.

In its reply, one of the Kenha engineers, Charles Okeyo, urged Justice Ngaah to dismiss SBI’s case. 

According to Okeyo, Kenha received agency notices from KRA requiring it to remit Sh3.6 billion.

Mutual consent

According to Kenha, SBI was a foreign company and if it was paid, KRA would be on the roads agency’s neck in the event the tribunal agreed with the Kenyan taxman.

In the meantime, KRA moved to the High Court seeking to freeze the money. The court gave the orders on June 9, 2022, and extended the same to June 20, 2022.

Later, KRA and SBI entered into a consent for it to retain Sh2 billion of the disputed sum and pay out an equal amount.

Kenha explained that it could not pay as it was not privy to the agreement between KRA and SBI.

Justice Ngaah said Kenha had no right to be informed about the consent since the dispute did not involve it.