Airtel wins Sh531m tax demand case

The taxman has lost a 16-year case in which it was seeking to collect Sh531 million from Airtel Kenya.

The Kenya Revenue Authority’s (KRA) claim arose from a dispute on the accounting classification of the telco’s Sh5.6 billion purchase of an operations licence when it was started.

High Court judge Fredrick Ochieng Monday threw out the KRA suit seeking to compel Airtel to pay the amount. KRA moved to the High Court after a tribunal ruled in favour of Airtel in 2005.

Justice Ochieng dismissed KRA’s claim that the telco should have classified its licence purchase as part of its initial capital cost which would have attracted the Sh531 million levies in favour of the taxman.

The judge added that at the time of KRA’s demand there was some ambiguity over Airtel’s excise liability regarding the licence purchase, and that the law must side with a taxpayer whenever such provisions are unclear.

The KRA in 1997 gave a legal opinion to an auditor regarding revenue reserves and accumulated losses, which Airtel used to defend the taxman’s claim for Sh531 million.

READ: KRA sues Airtel for Sh531 million fifteen-year claim

Justice Ochieng said the KRA did not dispute the accuracy of the legal opinion during the case. “The KRA has not demonstrated that the opinion of 1997 was incorrect. From the time the KRA gave the opinion it was aware that the auditor would relay the opinion to his client. The Local Committee (tribunal) held that where a doubt exists, the doubt must be in favour of a taxpayer. Accordingly I find no merit in the appeal and dismiss it with costs (of the suit) to Airtel,” Mr Ochieng ruled.

The KRA wanted Airtel to pay Sh261 million for 2000 and Sh270 million for 2001— the telco’s first two years of operation. The taxman insisted that the licence is an asset hence the fee paid for it should be recorded under capital expenses.

“We reiterate that the purchase of the licence was the acquisition of an asset and that is a capital expense,” KRA said.

Airtel had challenged KRA’s suit on grounds that it was filed outside the time provided for by law, but Justice Ochieng allowed the suit to proceed.

Airtel recorded the licence purchase as revenue expenditure, which allowed the telco to deduct the whole amount from its taxable income for the two years.

Airtel won the first round of the feud at the Local Committee — KRA’s appeals tribunal — in 2005, prompting the taxman to move to court.