The High Court has reversed a decision by the Tax Appeals Tribunal that blocked the Kenya Revenue Authority (KRA) from collecting Sh288 million from a regional bitumen supplying company, Jey Oil Africa Limited, in form of income tax and value-added tax (VAT).
While ruling on an appeal filed by the taxman against the tribunal's decision, Justice Francis Gikonyo said the tribunal erred by finding that the taxman had the burden of proving the tax assessments.
The company deals with export and supply of bitumen in various countries for road and pavements construction.
Justice Gikonyo said that since KRA's Commissioner of Investigation and Enforcement Department had considered the documents provided by the company and pointed out gaps, it was the burden of the firm to prove that the retained assessments were excessive or incorrect.
"... the company did not provide sufficient documents for the burden of proof to shift to the Commissioner," said the judge.
The court added that the tribunal erred in finding that the Commissioner made a blanket dismissal of the evidence adduced by the company on the ground that it was insufficient.
The tax dispute originated from the investigations carried out by the Commissioner to check on the tax compliance of the company for the period 2016 to 2020.
After this exercise, KRA issued the company with a Notice of Assessment of Tax dated February 14, 2023 for the periods June 2016 to December 2018 for Income tax and VAT amounting to Sh268 million and Sh273 million, respectively.
The company objected to the assessment and KRA Commissioner confirmed the principal taxes of Sh288 million being VAT of Sh124.6 million and Corporation tax of Sh163.6 million.
The amounts prompted the firm to lodge an appeal at the Tax tribunal arguing the assessments were erroneous and that the Commissioner did not consider the explanations and support documents provided by the taxpayer.
It argued KRA's assessment violated the provisions of the Income Tax Act, which stipulates that Income tax is chargeable only on gains or profit from business.
It also stated that the Commissioner analysed the bankings of all bank accounts, all monies appearing as received into the bank, including non-income items, which were clearly not chargeable.
The company added that the Commissioner also assessed Sh149 million for Value Added Tax, which were sales made to a client overseas and used in another market and, therefore, were exports that were not subject to VAT.
Denying claims that it did not provide documents, the company noted that in its response it provided documents such as financial statements for year 2016 and 2017, bank reconciliations analysis, summary of sales and sample invoices.
The tribunal chaired by Eric Nyongesa Wafula in the judgment dated July 12, 2024 ruled in favour of the company stating that KRA had failed to consider evidence adduced by the taxpayer. It said KRA was not justified in its confirmation of assessed taxes.
