Bamburi in fresh Sh492m tax row with KRA

What you need to know:

A KRA tribunal had in July this year ruled that Bamburi was entitled to the tax waiver, arguing that the refund was to be treated as sales proceeds and refund on depreciation of machinery.
KRA has however faulted the local committee’s ruling, and claims the decision to regard the entire refund as sales proceeds was wrong.
It now wants the court to reverse the tribunal’s decision and to allow it to treat the refund as taxable gains.

Cement maker Bamburi is locked in yet another legal battle with the taxman over a Sh492 million insurance refund.

The Commissioner of Domestic Taxes wants the High Court to set aside a decision made by a KRA tribunal exempting a Sh492 million insurance refund given to the cement manufacturer from tax, following an audit of its operations between 2007 and 2011.

The tribunal had in July this year ruled that Bamburi was entitled to the tax waiver, arguing that the refund was to be treated as sales proceeds and refund on depreciation of machinery.

KRA has however faulted the local committee’s ruling, and claims the decision to regard the entire refund as sales proceeds was wrong. It now wants the court to reverse the tribunal’s decision and to allow it to treat the refund as taxable gains.

“The (tribunal) erred in finding that the entire compensation should be regarded as sales proceeds and included in the written down value of the wear and tear schedule. The Commissioner of Domestic Taxes prays that its assessment arising from insurance compensation be upheld,” the taxman has said in the appeal filed in court.

Bamburi is locked in another court tussle with the taxman after it was slapped with a Sh19.3 claim for alleged unpaid taxes on its CEO’s housing allowance in 2009 and 2010.

The sum was part of a Sh3.016 billion refund given to the cement manufacturer following a seven-month inactivity period in 2007 due to a fire at its Mombasa-based factory.

Sh2.5 billion was a refund for loss of business and profits, while Sh563 million was for loss of its plant and machinery.

The taxman, after assessing the Sh563 million receipt, deducted Sh71 million, but was stopped by the local committee from further taxing the remaining sum.

The cement manufacturer maintains that the tribunal’s decision to exempt the Sh492 million from further taxation was correct, arguing that the Commissioner of Domestic Taxes had applied provisions of the tax law that did not apply to such refunds.

“Bamburi Cement reiterates that the tax treatment on the insurance compensation was in accordance with the Income Tax Act. The decision of the local committee was right in law and ought to be upheld by this court,” Bamburi has said in its response.

The taxman also wants to be allowed to slap Bamburi with a claim for a 27,000-tonne load of clinker—a cement component which the manufacturer sold to its Ugandan subsidiary Hima Cement at between of Sh6,300 and Sh6,750 per tonne.

The Commissioner of Domestic Taxes has questioned the method used by the cement manufacturer in adjusting the price for the clinker sale to Hima.

Bamburi however maintains that it provided an entire report on the clinker it sold to Hima and that it would be unfair to use a different method of calculation to force it to pay more tax.

Justice Fred Ochieng will mention the matter on January 30.