A tax tribunal has directed the Highland Drinks Limited to pay Kenya Revenue Authority (KRA) Sh403 million in taxes.
KRA sought the amount in Value Added Tax (VAT), corporation tax and excise duty from the company that manufactures and sells carbonated soft drinks, drinking water and cordials in the country.
Highlands approached the taxman under the Voluntary Tax Disclosure Programme (VTDP) by disclosing the total amount owed was Sh170 million between 2016 and 2019.
KRA commenced investigations where it discovered that the company owed Sh901 million in taxes with penalties and interest on December 31, 2021.
The company objected to the figure on May 16, 2022, and the taxman reviewed its demand before settling on Sh403 million in a letter dated June 16, 2022.
It argued that KRA failed to consider that it sells water, cordials and soft drinks which are dispatched in different volumes, alleging that it did not declare any volume and excise in cordials.
It said KRA erred by considering sales volumes in charging excise duty payable in contravention of the Excise Act, 2015, which provides that duty is chargeable on goods removed from the factory.
According to Highlands, the taxman erroneously calculated the tax demands which included the calculation of sales and revenue.
It told the tribunal that its actual sales volume and price as provided were ignored.
The average price and ex-factory price for water as indicated in the excise return to determine sales and revenue for corporation taxes and VAT is what KRA used.
The company wanted the tribunal to fault KRA for classifying cordial as a drink containing fresh fruit juice which meant it would pay an excise duty of Sh10 per litre.
Their cordial was made by mixing water, sugar and flavouring concentrates to add flavour and preservatives to prevent it from fermenting, the tribunal heard.
Highlands said the taxman refused to give it the results of samples tested in the laboratory and tariff reclassification therefore infringing on its rights to fair administrative action.
According to the company, the sale and price dates on which products were sold were ignored and instead, KRA made its calculations using average selling prices and estimated retail prices. On its part, KRA told the tribunal that it received intelligence that Highlands was under-declaring sales to evade payment of taxes.
After investigating the claims and correspondence between the two, they assessed the total amount owed to Sh403 million from the initial Sh901 million that it had demanded.
The taxman said it was not provided with opening and closing stock data to warrant adjustments for the times it was investigating and that all excise duty paid was considered when computing income tax.
It noted that there were discrepancies between production volumes provided by Highlands during the investigation and in their returns.
On the prices of water, soft drinks and cordial, KRA said it adopted the prices provided by the company in its objections.
It added that Highland’s decision to adopt VTDP did not prevent it from carrying out independent investigation.
KRA said the results of the samples tested are what led it to charge their cordial product at Sh10 per litre, and all samples came from Highlands.
The tribunal heard that one of the samples tested contained fresh fruit which made KRA reclassify the product which resulted in an additional excise duty of Sh114 million.
The taxman said Highland’s submitted 17 million litres for sampling instead of 22 million. This difference, KRA said, amounted to Sh27 million in taxes.
The tribunal noted the disputed figures by the company and KRA for the excise duty of 2018 were brought about by the failure to consider January-March but the final figure from the two totalled Sh90 million.
It was also noted that variance in dispatch and declared volumes saw Highlands overpay excise duty with Sh1.9 million and the undeclared amount by Sh63 million was paid under VTDP.
The company said despite declaring and paying the excise duty, the action by KRA amounted to double taxation.
Highlands said that it paid Sh6.4 million for VAT between 2018 and 2019 and faulted KRA for charging them Sh180 million as VAT and Sh22 million as income tax using expected sales and average selling price which was erroneous.