KRA blacklists Airtel, Total over unpaid customs duties
From left: Wambui Namu, KRA Commissioner of Customs, Shivan Bhargava, Airtel COO and Alexis Vovk, Total Kenya CEO
The Kenya Revenue Authority has suspended 12 companies and customs agents from transacting any business with its customs office following a row over more than Sh1.5 billion in tax dues, signalling its resolve to maximise on revenue collections in the wake of tough economic times.
Several leading companies, including multi-nationals, have been affected by KRA’s decision and risk disruptions to their businesses, especially those involving cross-border transactions with subsidiaries, suppliers as well as customers abroad.
“The under listed institutions, companies, individuals and customs agents have been suspended from transacting any business with Customs Services Department with immediate effect until they clear all pending matters,” Wambui Namu, the commissioner for customs services said in an internal circular.
The official said KRA was particularly keen on having the listed persons and companies clear their dues following the conclusion of court cases they had filed against the tax-man but lost.
KRA said it had frozen transactions with oil marketer Total (K) Limited and mobile company Airtel (formerly Celtel).
Impeccable sources indicated the taxman was demanding, Sh187 million from Airtel and Sh131 million from Total, including principal, interest and penalties.
Others affected by KRA’s action are NIC Bank (Sh1.4 million) on behalf of two clients Edmond Seguya and Ibrahim Kimera, Africa Merchant Assurance Co Ltd (Sh205 million) on behalf of Apparels Trading Company, Arrow Hi-Fi Ltd and Nyati Kenya (2000) Ltd (Sh5 million), Equatorial Nut Processing Ltd (Sh837,000) and Concord Insurance Company Ltd (Sh115 million).
Mombasa-based Munira Freighters Ltd (Sh559,000), Awal Ltd and a Mr Athumani Juma Ganzori (Sh19.6 million) have also been slapped with sanctions by KRA. We could not immediately confirm the amounts owed by Arrow Hi-Fi Ltd and Awal Limited.
However, we learnt Primarosa Flowers Ltd had since been reinstated after clearing the Sh1.2 million.
Officials at KRA indicated that all tax dues owed to it by the affected group exceeded Sh1.5 billion inclusive of accrued interest.
Following the suspension, KRA deactivated the passwords and disabled the remissions accounts of he affected customs agents.
On Thursday, officials from some of the affected companies pitched camp at the KRA’s debt and remissions office in Nairobi in a bid to negotiate a soft landing.
Some brought in cheques to off-set part of the dues while others sought a grace period to fulfill their obligations that have been stretched by accrued interest fees.
Total Kenya confirmed it was in talks with KRA over the tax row but declined to comment on the details of the case.
“I will not comment on the matter right now until it is cleared. I am currently at the KRA offices trying to make a follow up,” Maurice K’Anjejo, the Corporate Affairs manager at Total Kenya said when reached on phone Thursday morning.
“You may talk to KRA for the details of the matter,” he further said.
Airtel Kenya said it had resolved the matter with KRA late Thursday evening.
“The suspension was lifted yesterday and our account is in the process of being re-activated” said Shivan Bhargava, the Airtel Kenya chief operating officer.
However KRA only confirmed Prime Rosa as having been reinstated by Thursday evening. It described its actions as “a routine exercise”
“Ours is to ensure everything goes as per the rules and regulations,” Kennedy Onyonyi, head of communication at KRA said.
“Once you lodge a transaction in the system with an intention to pay we make a follow up to ensure you pay so that transactions don’t stay pending in the system for long,” he said without providing detail.
Analysts said the sanctions by KRA could have serious implications on the operations of some companies especially those in the import and export business if the matter is not resolved soon.
“The move has the potential to cripple the ability of a company to ship in or ship out goods and products,” Jack Ranguma, a senior advisor with Tax Justice Network for Africa said.
The primary function of KRA’s Customs and Excise department is to collect and account for customs and excise taxes. Some of the taxes collected include import duty, excise duty (both on imports and local), and value added tax (VAT) on imports.
This means that companies such as Total Kenya and Airtel that have interest in the exportation and importation of products and equipment could have serious knocks on their operations.
In the oil industry for instance KRA requires that importers pay an upfront prepayment of 50 per cent on oil imports to curb dumping, meaning that any player locked from dealing with the tax man would not be able to make shipments into the market.
Some analysts said KRA’s aggressive purge on the companies and customs agents that owed it taxes may point to pressure to maximise on collection amid difficult economic times.
“KRA is only exercising its obligation of ensuring all revenues due are remitted. The tough economic times also mean that it has to tighten its belt in order to maximise on the collections by milking every opportunity,” a tax expert said.
Both KRA and the Treasury are currently caught in a tight spot after tax revenues for the second quarter of the financial year were off target by a massive Sh45 billion, raising concern that the government may review its expenditure plans to cope with the shortfall.
Official statistics by Treasury showed that the government only realised Sh345 billion in revenues from taxes, grants and domestic borrowing against a target of Sh390 billion for the period under review that began in July.
A Sh45 billion shortfall may force the Treasury to put government agencies on a fresh round of spending cuts with huge ramifications on the economy.
The Treasury’s latest data shows that taxes were Sh23 billion below target in the second quarter while donors failed to disburse Sh10 billion of promised funds leaving huge gaps in the budget.
This performance is likely to force the government to adopt new austerity measures only months after it cut spending on travel, furniture, cars and training to finance the war in Somalia. That effort amounted to a Sh15 billion expenditure cut out of the Sh1.155 trillion budget for the current financial year.
Expenditure reduction was seen as the best way to cushion the economy from the interest rates rise shock that would have come with a sudden increase in government borrowing from the domestic market.
Last month, the KRA said in a statement that the unfavourable macroeconomic environment was to blame for the less than expected outcome of revenue collections at the end of last year.
“The operating environment leading into and during the second quarter 2011/12 was not promising having been characterised by high inflation, rising interest rates, fluctuation of the exchange rate and high oil prices,” said Michael Waweru, the outgoing commissioner-general.
Mr Waweru said the unfavourable economic conditions were “likely to continue in the third quarter of financial year that ends in March.”
