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KRA wins Sh9b tax case against dealer

By Kamau Muthoni | January 28th 2021
By Kamau Muthoni | January 28th 2021

A wholesaler has been ordered to pay Kenya Revenue Authority (KRA) Sh9 billion tax following an audit of its accounts.

Paleah Stores Limited, the wholesaler dealing in food and building materials, found itself with huge tax liability after statements by its bankers and suppliers gave it away.

The firm battled KRA before the tax appeals tribunal but its case was thrown out.

Corporation tax

The tribunal ordered it to pay Sh1.3 billion corporation tax and Sh7.8 billion Value Added Tax (VAT).

“We find the appellant (Paleah) has failed to make a case against the respondent on account of the alleged unfairness. The appellant was afforded an opportunity to present its case through the various meetings with the respondent.

“The respondent’s objection decision dated March 29, 2017, with the revised tax payable for the years 2008 to 2014 of Sh1.3 billion and Sh7.8 billion being corporation tax and VAT respectively, comprising of principal tax, penalties and interest is hereby upheld,” the Josephine Maangi-led tribunal ruled.

In 2016, KRA asked Paleah to submit all its banking statements and purchase documents to enable the taxman audit how much the wholesaler had paid as taxes. It also demanded the firm to pay Sh250 million which was to cover VAT tax liability for 2008 to 2012.

However, the firm did not provide the documents.

Following Paleah’s failure to file all the information, KRA went after its bankers and suppliers.

Upon analysis, KRA slapped the dealer with a Sh3.9 billion tax bill.

KRA demanded Sh973 million corporation tax for 2008 to 2014, Sh2.9 billion VAT for the same period and Sh5.1 million Pay as You Earn deducted from its employees.

KRA told the court that it issued Paleah with more than Sh9 billion tax bill after analysis of all the documents supplied to it.

Paleah filed its objection, arguing that it was a victim of bad professional advice as its tax returns did not reflect the real position of its operations for the years under scrutiny.

The firm argued that based on its own assessment, KRA ought to have demanded Sh34 million between 2008 and 2014.

It claimed that its operating expenses for that period was Sh1.5 billion while KRA computed Sh136 billion.

“It is the appellant’s contention that a person or business entity conducting business is entitled to deduct all operations expenses incurred during the period under review,” it argued.

Paleah lamented that KRA tabulated VAT without involving it, adding that the tax liability probe was illegal.

The firm urged the tribunal to set aside the assessment.

In its response, KRA told the tribunal that Paleah had under-declared its profits for the investigations period.

At the same time, KRA argued that although Paleah had claimed that it paid its suppliers more than Sh3.2billion as VAT, it ought to have paid Sh7.8 billion to the taxman, which included interest and penalty.

“The respondent carried out proper and credible investigations and the resultant assessments were issued in accordance with the applicable laws. The introduction of additional documents by the appellant at the hearing of the appeal is an abuse of the court process,” KRA replied.

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