Seven Seas Technologies Limited has been directed to pay the Kenya Revenue Authority (KRA) Sh900 million in taxes by a tribunal.
The bill is for Value Added Tax (VAT), Pay as You Earn (PAYE) and withholding tax between 2015 and 2019, inclusive of penalties and interest.
The company serves institutional clients in the healthcare, finance, security and social services industries.
When it was presented with the tax bill, Seven Seas told the tribunal that it objected to KRA on September 22, 2020.
“In view of the foregoing, the tribunal finds that the respondent’s (KRA) objection decision dated 10th March 2021 was validly issued,” said the tribunal.
The company said the KRA erred when it demanded the payment of withholding taxes in respect to certain payments made yet the taxes had been deducted and remitted.
It argued that KRA demanded withholding tax that it had supplied which it said was contrary to Sections 10 and 35 of the Income Tax Act.
According to Seven Seas, KRA demanded tax of accruals from audit, legal and professional fees that were reversed upon issuance of the actual fees by suppliers.
It added that some of the supplies were never received and no payments were made subject to payment of the tax.
Seven Seas said that KRA demanded tax on revenue items and foreign exchange differences which are not submitted to withholding taxes.
It said KRA wanted to get paid PAYE from its directors yet the related amounts had been used to settle business expenses which are normal in business operations.
The company said that some of the money was used to pay software costs, salaries, investments and general operating expenses incurred to enable it to generate income that would then be taxed.
The tribunal heard that KRA also wanted to get paid taxes for items omitted from VAT returns and also demanded double taxation on various transactions.
Seven Seas said the taxman failed to consider that some of the sales had been reversed and that KRA could not demand VAT from credit notes issued yet none was collected.
On its part, the taxman said it acted within the law in response to the objection raised by Seven Seas.
On the tax double charge, KRA said Seven Seas had charged withholding tax on accrued legal and audit fees from the input VAT schedule, legal and audit ledgers, trade creditors’ ledgers and customer payments.
According to the taxman, the payments and supplies were recurring and the company therefore subjected them to withholding tax severally.
It said that it only demanded tax from services since they were the only ones subject to taxation.
Seven Seas also protested a move by KRA to demand tax from directors’ fees that had not been paid.
The company said that KRA wanted to get paid for directors’ fees Seven Seas provided in their books between 2015 and 2016 for two directors who are yet to receive the money due to financial constraints.
Seven Seas, however, did not provide documents to back this claim and it was discovered that the directors withdrew different amounts from the company’s bank accounts.
The company also argued that it had been told to pay KRA tax for missing invoices yet they declared the income from the invoices while filing tax returns.
According to KRA, the company was yet to provide some of the documents it sought and there were discrepancies between the aggregate sales declared in VAT and income tax.
“The respondent (KRA) asserted that it observed that some invoices issued to clients did not bear a VAT amount thereby not declared as sales in VAT returns contrary to Section 5 of the Value Added Tax Act that provided that VAT is chargeable on a taxable supply made by a registered person in Kenya,” said the tribunal.
While dismissing the appeal, the tribunal noted that Seven Seas had been unable to answer the questions raised by KRA as to why it should not pay demanded taxes.