KDN dips into the red amid tax refund spat

Kenya Data Networks Wednesday said it is in the red after the Kenya Revenue Authority failed to refund Sh912.7 million as ordered by the High Court in January.

The High Court on January 28 ordered the taxman to pay KDN the cash that has been piling since 2009 within two months, adding that KRA was neglecting its duty in failure to refund the input taxes.

READ: KDN wins Sh912m in tax refund covering four years

However, KDN has filed a contempt case against KRA commissioner general John Njiraini for failure to honour the court ruling. The taxman has also lodged a counter claim of Sh395.7 million from KDN in tax arrears and erroneous tax refunds to the IT firm.

“Failure by the KRA to pay the VAT refund claims has forced the applicant to rely on, inter alia, shareholders loans, bank overdrafts and advances to meet its financial obligations,” KDN said in papers filed in court.

“The applicant’s business is at risk of collapsing and has resorted to job cuts.”

The new twist in the tax refunds battle comes at a time when total outstanding VAT reached Sh25 billion at the end of last year, with KRA saying it favours upholding the new system that scrapped withholding VAT.

No certificate

The tax collected from KDN was levied on the company’s imports of ICT goods and equipment such as fibre optic cables.

KDN argued that the delay in the refunds caused it financial hardship besides leading to the company’s lockout in lucrative government tenders for lack of tax compliance certificate.

KRA issued the company with the certificate on July 20, 2012, by which time KDN says it had already missed out several tenders.

The company is a major player in the wholesale data and Internet infrastructure business but has of late come under immense competitive pressure from rival firm Wananchi Telecom.

Share dropped

KDN has in the past two years faced lower revenues and profit on high cost and stiff competition, which has seen the operator, lose big contracts including the multi-million-shilling contract with Safaricom.

The firm’s market share dropped to 28.9 per cent as at December 2012 from 33.4 per cent at the end of 2011 based on subscribers. This fall in market share has seen KDN drop to position two after it was overtaken by Wananchi Telecom.

KDN’s victory in the VAT case comes as many other businesses await their refunds from the taxman.