KRA sues Airtel for Sh531 million fifteen-year claim

The Kenya Revenue Authority (KRA) is pursuing Airtel Kenya for Sh531 million taxes it claims the telco owes from its first two years of operation in Kenya.

The taxman says in court papers that the amount arose from Airtel’s $55 million (Sh5.6 billion) purchase of an operating licence in the year 2000.

The Commissioner of Income Tax wants the High Court to declare Airtel in default of the amount and settle the 15-year due.

KRA claims that Airtel should have recorded the Sh5.6 billion licence purchase as part of capital cost — the charges a firm incurs when starting a business — which would have made it not liable to the Sh531 million tax deduction that it booked between 2000 and 2001.

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.

Under tax laws, revenue expenditure are operational costs that can be deducted from a firm’s taxable income for a particular year, but capital expenditure is not.

Airtel on Tuesday asked Justice Charles Kariuki to grant it two weeks to file its written arguments in response to KRA’s claim.

“The Commissioner of Income Tax is aggrieved with the decision of the Local Committee that Airtel’s initial $55 million paid upon grant of licence for 15 years was revenue in expenditure. The cost of buying the licence remains a capital expense not deductible under the Income Tax Act.

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

The taxman says Airtel owes Sh261 million for the year 2000 and Sh270 million for 2001, as the telco deducted them from its taxable income for the two years.

READ: Airtel's Sh2.1bn licence renewal fee splits CA board

Airtel had challenged KRA’s suit on grounds that it was filed outside the time provided for by law. KRA, however, insists that it sued the telco within 30 days of declaring its intention to appeal the Local Committee’s ruling.

KRA adds that Airtel has not produced any evidence to show that its suit was filed outside the 30-day window.

Mr Justice Kariuki ordered the two parties to appear before him on December 1 to highlight their arguments before he delivers a ruling.

The suit comes at a time Airtel is in a standoff with the Communications Authority of Kenya (CA) over renewal of its licence, which expired in February.

Airtel says the Sh2.1 billion CA has demanded for a 10-year renewal is too high for a small operator like itself.

The telco is currently operating on a licence acquired along with Essar’s (yuMobile) assets in a deal concluded early this year. It has argued that the transferred Essar licence should be legally sufficient for its operations, a matter that has split the CA board.

Airtel and rival Safaricom last year acquired Essar Telecom in a joint buyout valued at Sh12.3 billion. Airtel acquired Essar’s subscribers, GSM licences and subscriber-related contracts.