Car & General (C&G) is fighting off three tax demands from the Kenya Revenue Authority (KRA), marking the latest round of dispute between the taxman and the Nairobi Securities Exchange-listed firm.
The firm has disclosed in its latest annual report that KRA issued three separate tax demands in the year ended December 2023 when it made a Sh273.7 million net loss that was the outcome of a Sh826 million foreign exchange and demurrage costs.
C&G says the taxman, after a series of legal battles, withdrew a Sh677 million tax demand relating to the company's tariff classification for three-wheelers (tuk tuks) for the years 2015 to 2021 but issued a Sh224 million fresh demand in respect to the same product’s tariff classification for the period between January 2022 to January 2023.
KRA also conducted a transfer-pricing audit on C&G and issued an additional income tax assessment on the firm's subsidiary0-Cummins C&G Limited of Sh109 million for the 2017 financial year and Sh135 million for the financial years 2018 to 2021.
C&G says it has objected to all three assessments and the three cases are currently at the Tax Appeals Tribunal. According to the company, Cummins CMI, the former joint venture partner, guaranteed an indemnity of 50 percent in case of an adverse ruling against C&G on the two matters related to transfer pricing.
The company had a 50 percent stake in Cummins C&G Holdings Limited which it held as a joint venture with CMI Africa Holdings BV. However, on June 20, 2023, it acquired the remaining 50 percent stake of Cummins C&G, making the firm its subsidiary.
Cummins C&G Holdings Limited carries on the business of sale and service of commercial engines and power equipment. The business contributed Sh112 million to C&G’s profit for the period between the date of acquisition and the reporting date (December 2023).
C&G estimates show if the acquisition of Cummins C&G Holdings Limited had been completed on the first day of the financial year, group revenues for the period would have been Sh2.61 billion and group profit would have been Sh137 million.
The firm changed the ending of its financial year to December from September and booked a Sh273.7 million net loss for the 15 months period between October 2022 and December 2023. It had posted a Sh679.46 million net profit in the 12-month period ended September 2022.
The firm said sales in Uganda and Tanzania accounted for over 58 percent of group sales. C&G runs five distinct business lines including automotive and equipment distribution, real estate investment, financial services, poultry and helmet manufacturing.
Its motorcycle business experienced a 77 percent decline in volumes of sales in Kenya, which it attributed on the increase in the price of fuel and the general inflationary environment, which resulted in a lack of profitability for boda boda riders.
