The firm behind Nairobi's tallest building will pay the Kenya Revenue Authority (KRA) Sh52 million after losing an appeal before the Tax Appeals Tribunal.
The Eric Wafula-led tribunal ruled that the information relied on by the authority to assess the tax liability was provided by Avic International Real Estate's financial officer.
It found that Avic could not turn around to demand a lower percentage.
Avic owns The Global Trade Centre, Nairobi (GTC Nairobi) in Westlands.
"A finance officer in any organisation is not such a lowly position, as has been made to appear by the appellant (Avic), to justify its position that its officer did not know what he was talking about. This was an attempt to bolt the stable after the horse had already taken off," the tribunal ruled.
"The finance officer position in an organisation is a key position and plays a pivotal role in the day-to-day financial operations, planning, and strategy which include company projections. This is the first port of call for Revenue Authorities whenever they engage with an organization. Information flowing from this office is taken with the seriousness it calls for. The respondent was therefore justified to base its assessment on the information given by the finance officer."
The firm opposed the assessment arguing that it had provided all information and paid its dues.
According to tribunal documents, KRA asked the real estate firm to provide further information.
Avic stated that it had claimed input tax from the authority and had also accounted for VAT.
It based its argument on documents provided through electronic tax registers and compliant tax invoices.
It, however, went quiet from 2019 to 2020 when it informed Avic that it had accepted invoices in support of Sh 151 million.
Nevertheless, KRA dismissed Sh52 million input tax claim for the same period. It further disallowed another amount of Sh 457,426. According to KRA, Avic did not provide documents to support its claim for the amount.
Aggrieved, Avic moved to the tax tribunal. It argued that KRA was apportioning its input tax credit at a rate of 34.8 percent instead of 18.26 percent.
According to Avic, it incurred various expenses in the construction of various constituents of its ultra-modern real estate complex the GTC which is situated on a parcel of land along Chiromo Road, Westlands.
The ultra-modern real estate project comprises a high-rise office tower, an international five-star luxury hotel operated by JW Marriott, four blocks of high-end apartment towers, and a boutique mall.
It argued that based on its records, the total cost incurred on the four blocks of apartments amounted to 34.87 percent of the total project as of June 30, 2020. According to Avic, this is the same as the percentage the KRA used in apportioning its input tax. Avic stated it instead only intends to sell Towers B and C being residential apartments, thus accounting for only 18.26 percent of the total costs.
The tribunal heard that other towers A and D will remain under Avic and will be operated as serviced apartments, and as such, the supplies made through the two towers will not qualify for VAT exemption as they are not residential premises.
It asserted that the project is a mixed-use development of both commercial and residential property, and KRA ought to have taken into consideration the different categories in order to apply the right amount of VAT.
According to Avic, KRA demanded Sh52 million on the belief that all four blocks were high-end apartments and they would all be sold as residential premises upon completion. KRA on the other hand stated that it noted in its Itax system that there were inconsistencies on invoices declared by Avic between January 2018 and May 2018.
It argued that some suppliers did not declare sales to Avic. It added that since the building comprises both commercial and residential properties, the real estate firm had corroborated the 34.86 percent apportionment. The firm provided this percentage during the audit.