Companies

Kenya Re fights bid by KRA to demand Sh1.2bn in taxes

The taxman has accused Kenya Reinsurance, of hoodwinking the court when it obtained orders barring KRA from enforcing a Sh1.2 billion claim.

Joyce Ndeda, an officer in the Commissioner of Domestic Taxes, made the claim in suit papers filed at the High Court, in which she blamed the State corporation of moving to court before exhausting other appeal channels.

Lady Justice Mumbi Ngugi on August 11 granted Kenya Re a temporary injunction barring the taxman from collecting the colossal sum. Kenya Re had said in its application that it had not been granted an opportunity to appeal the claim.

READ: KRA in Sh1.2bn tax claim against Kenya Reinsurance
Ms Ndeda said Tuesday said the Kenya Revenue Authority (KRA) had informed Kenya Re of the claim, and that it had revealed to it the options it had in the event that it wanted to appeal.

Kenya Re told Lady Justice Ngugi that it filed the suit in fear of having its assets attached to the tax claim, adding that its bank accounts were also at risk of being frozen.

The dispute arose after an audit by KPMG on behalf of the taxman revealed that the parastatal was in non-compliance with tax laws, and was liable for Sh1.2 billion in tax.

The tax claim, Kenya Re MD Jadiah Mwarania said in suit papers, arose from commission and brokerage it had charged on insurance companies based outside Kenya, and that the taxman had informed the firm that the same was tax deductible.

He added that some of Kenya Re’s clients on who the claim is based are in Zambia, India and the United Kingdom. Kenya Re insists that the money would only be tax deductible if there was an agency relationship between it and its clients, which Mr Mwarania said is non-existent.

The Commissioner of Domestic Taxes Tuesday told the court that while the tax claim arises from clients based outside its jurisdiction, Kenya Re earned the income within Kenya, and is therefore liable for taxation on the same.

Ms Ndeda said in suit filings that it had informed Kenya Re of the reasons for the tax claim through detailed letters on June 18 and July 9 this year.

“In its letter, the Commissioner of Domestic Taxes gave detailed grounds for its audit findings, made a formal demand and notified the petitioner of its right to object under section 84 of the Income Tax Act,” she said.

The taxman further accused Kenya Re of failing to demonstrate to the court that the tax claim is unlawful.

“The demand by the respondent was lawful since it relied on sections 10 and 35 of the Act to demand withholding tax in respect of the commissions, profit commissions and brokerage fees paid by Kenya Re,” added KRA lawyer Ann Ng’ang’a.

Ms Ndeda also told the court that both the Commissioner’s office and the general public was at risk of suffering loss if Kenya Re fails to remit the tax.

Lady Justice Ngugi will hear the matter on November 26, but she ordered that the parties file their written arguments before then.