Bamburi Cement faces tax claims amounting to Sh1.2 billion by authorities in Kenya and Uganda, with the company saying it has taken steps to avert the potential payouts.
The tax demand dwarfs the net profit of Sh181 million the Nairobi Securities Exchange-listed firm posted for the year ended December.
Bamburi says in its latest annual report that Kenya’s Treasury Cabinet secretary declined its application for penalties and interest waiver worth Sh288 million in a letter delivered on February 23, 2022.
The penalties arose from a tax assessment starting from 2007 to 2011.
“The company will continue to engage the Cabinet Secretary for National Treasury and Planning for a review of the decision to decline our penalties and interest waiver application,” said Bamburi.
The company has also been served with a demand for taxes totalling Sh956 million in Uganda where it operates through its subsidiary Hima Cement Limited.
“In September 2020, URA commenced a review of the Hima Cement Limited (HCL)’s transfer pricing compliance for the financial years of 2014 to 2018. In December 2022, Uganda Revenue Authority raised Corporation tax assessment with the principal tax of Sh594 million and interest of Sh362 million,” said Bamburi.
“The company objected to the raised assessments and submitted a detailed response to the objections team of URA. As per the Tax Procedural Code Act, URA is required to review the objection application and communicate a decision within 90 days from the date of objection. The objection was submitted on February 10, 2023.”
The cement maker said it reached a settlement with the Kenya Revenue Authority in 2018 based on the alternative dispute resolution framework regarding a tax assessment between 2007-2011 and paid principal tax amounting to Sh332 million relating to corporate tax.
The company also paid principal tax from 2021 to 2014, amounting to Sh40.6 million relating to corporate tax, withholding tax and value-added tax.
After the payments, it applied for a waiver of interest and penalties which were subsequently declined by the Treasury CS last year.
Bamburi's net income collapsed to Sh181 million last year from Sh1.3 billion in 2021, with the performance driven by lower sales, high costs and a larger-than-normal tax bill.
"The company will apply for a refund of the tax overpayment," Bamburi said.
It paid taxes of Sh454 million in the review period when its pre-tax earnings stood at Sh635 million, amounting to an effective tax rate of 71.4 percent.
The standard corporate income tax rate for resident firms is 30 percent which is closer to what Bamburi paid in 2021 –taxes of Sh792 million on pre-tax earnings of Sh2.17 billion.
The cement manufacturer’s sales also declined to Sh38.9 billion from Sh41.3 billion while costs such as marketing and production remained high.
