Lebanese firm barred from auction of KPC assets in tax battle


Oil Tankers parked outside Kenya Pipeline Company(KPC) Nakuru depot on September 5, 2018. PHOTO | AYUB MUIYURO | NMG

A Lebanese firm that constructed the Mombasa-Nairobi oil pipeline has been stopped from auctioning Kenya Pipeline Company (KPC) a disputed debt of Sh805 million.

The Court of Appeal stopped the seizure after KPC argued that its appeal would be rendered useless because there is evidence that it has already paid substantial sums of Zakheem International Construction tax arrears to the Kenya Revenue Authority (KRA).

The High Court had allowed the Lebanese firm to attach and auction assets belonging to KPC over a debt of $7,157,824.77 (about Sh805 million), which the firm argued was the balance due to it from KPC after paying part of its award to KRA.

KPC had paid KRA tax arrears of the Lebanese firm amounting to Sh3 billion.

Justice Ngenye Macharia had in April dismissed KPC’s application and ordered execution against it, forcing the company to head to the Court of Appeal.  

KPC argued that unless stopped, Zakheem would sell its assets and would also be subjected to double payment over taxes which have directly been paid to KRA.

Justices Agnes Murgor, Helen Omondi and Imaana Laibuta agreed with KPC that its appeal would be rendered useless because the company had paid substantial sums on behalf of Zakheem’s tax arrears to KRA.

“Given these circumstances, prudence would dictate that any further payments to the respondent be forestalled until the intended appeal is heard and determined,” said the judges.

The taxman has been demanding payment from Zakhem for the construction of the Sh48 billion oil pipeline. 

The taxman had issued several agency notices to KPC and its bankers after the High Court directed it to pay Sh4.7 billion to Zakheem in June last year.

The KRA has charged KPC to collect Sh6.7 billion, which the contractor owes the taxman.

Agency notices technically appoint companies or lenders as agents of the taxman to collect any unpaid tax.

KPC contracted Zakhem for the construction of the 450-kilometre oil pipeline at a cost of $484,502,886 inclusive of taxes in July 2014.

The High Court in June last year ordered the company to pay Zakhem Sh4.7 billion for delay the construction for four years resulting in losses.

And soon after the court issued the award to Zakheem, KRA issued an agency notice on KPC and its bankers, Standard Chartered #ticker:SCBK demanding immediate payment of Sh6.1 billion as taxes due.

The High Court later directed KPC to pay Sh1.3 billion to the taxman but KRA issued more agency notes to Kenya Pipeline and its bankers demanding more money. The taxman later started attaching KPC properties demanding payment of $7,157,824.77.

According to KPC, the taxman has issued three warrants seeking to attach its properties, yet the company has paid the tax demanded.

The taxman has hinged its action on the Tax Procedures Act, which gives KRA powers to freeze property and auction the assets to recover the unpaid tax.

The Lebanese firm opposed the application saying what was disputed was the balance.

“As we understand it, the question turns on whether the applicant has paid all amounts it owed to the respondent as tax arrears, and if so whether the respondent is entitled to any further payments in respect of the sums claimed,” the judges said. 

They said these are some of the issues that require to be ventilated before them. 

The Lebanese firm won the tender in 2014 to build a 20-inch pipeline in Kenya and it promised to complete the work in 18 months at a cost of Sh48 billion. But due to delays, the contract which was meant for 18 months from August 11, 2014 to February 9, 2016, took four years.

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Editor's Note: This story has been revised to indicate that it is Zakhem International Construction that has been stopped from auctioning KPC assets and not Kenya Revenue Authority.