Carrefour sues taxman in Sh523m VAT refund row

French retailer Carrefour has sued the taxman for rejecting a Sh523 million VAT refund claim over inconsistency with filings from its suppliers under a new digital system.

The new system installed in October 2018 compares VAT returns by suppliers and buyers to curb the use of fake invoices or inflated refunds.

Carrefour owners, Majid Al Futtaim Hypermarkets Limited said they raised an objection over a year ago and supplied KRA with 11,000 invoices each month without getting a resolution even as the disputed tax claim continued to incur an additional Sh65 million interest.

Ahmed El-Gindy, Majid Al Futtaim Hypermarkets country finance manager asked the court to declare the implementation of the digital Value Added Auto Assessments (VAA) as illegal and force KRA to accept the disputed input tax.

Mr El-Gindy said the VAT claim was colossal and KRA’s dispute could impact its operations and budget for paying suppliers, employees and debts.

“To date, no objection decision has been received by Carrefour from KRA and the principal tax assessment amounts continue to reflect on Carrefour’s Tax ledger and continues to accrue interest pending determination of the objection by KRA,” Mr El-Gindy said in an affidavit.

The retailer says the taxman’s new automated system that compares VAT refunds between suppliers and buyers is picking up human errors and lump sum filing as tax leakages and raising disputed claims.

The retail chain said it had over 1000 suppliers for its various supermarkets and following up with each one to provide KRA with bank statements, invoices and supplier statements for more than a year had become an administrative nightmare.

KRA has been rejecting billions of shillings in tax input claims after the new automatic Value Added Tax computations installed in October 2018 to help nab cases where a seller and buyer file inconsistent returns,

The taxman claims that inconsistencies between purchase and sales invoices submitted by traders has seen them claim billions on input fraudulently.

since the claims are bulky forcing the taxman to set up the Value Added Auto Assessments (VAA).

The new system has been criticized for blindly comparing invoices serial numbers resulting in mismatches between the invoices booked by the seller and the buyer due to the nature of the financial system used on both sides.

The Retailers Association of Kenya (Retrak) say the system is not suited to retailers especially small ones since they send their VAT records in bulk after selling to individuals who later make separate claims which means that records do not match.

The retailers also said that even though several reconciliations were attempted it was not possible to amend the returns from both sides due to iTax system restrictions.

They say VAA also computes penalties and interests which is illegitimate by law as the amounts for the taxpayer are not due.