How banks, suppliers turned in Sh9.3bn Embu tax cheats

Banking and supplier records helped the Kenya Revenue Authority (KRA) to net Sh9.3 billion from a trader who had failed to file correct returns over a six-year period.

Fillings before a five-member Tax Appeals Tribunal revealed how a mismatch of stocks inventories, tax declarations and bank transactions lifted the lid on the proprietors of Embu-based Paleah Stores Ltd who had dodged remitting tax dues for more than half a decade.

The business owners — man and wife — had filed erroneous returns of income and self-assessments between 2008 and 2014, which was way below expectations given the booming business witnessed at the firm.

Spooked by the anomaly, the taxman, acting on a tip-off, opted to audit the business, which deals in building materials and foodstuff.

The KRA’s audit attempt, however, initially hit a snag after it emerged that the business did not have complete records on its transactions.

Determined to establish the true worth of the Paleah Stores’ transactions and tax dues, the taxman turned to the company’s bankers and suppliers for assistance.

An audit of the company’s bank transactions and supplier contracts found that it had not declared a total of Sh9.3 billion in taxes— being Sh1.3 billion of corporation tax and Sh7.89 billion in VAT, plus interest and penalties.

Paleah Stores, however, disputed the tax assessment by the KRA, arguing that its own computation of tax payable for the said period was Sh34.8 million.

The company said the corporate tax claim was irrational and failed to factor Sh1.58 billion it had incurred in operational expenses.

Paleah Stores sued the KRA at the tax tribunal, which ruled in favour of the taxman.

“From the foregoing, the tribunal is of the considered view that the Respondent did not err in law and fact by issuing additional income tax assessments on the Appellant for the years of income 2008 to 2014,” the tribunal chaired by Josephine Maangi said.

During the hearing Paleah Stores admitted that with hindsight, it regrettably realised that it was a victim of bad professional advice to the extent that the accounts and tax returns submitted did not reflect the real position of its operations for the years.

The tribunal observed that Paleah Stores had not complied with its statutory obligations of keeping proper records for purposes of computing tax.

The tribunal noted that in absence of complete records, Paleah Stores and the KRA agreed to use the Banking Method to compute income for corporation tax, sales for output tax and purchases for input VAT.

The tribunal further said the trader was expected to provide evidence of unfairness meted out by the KRA and not merely casting aspersions of purported procedural unfairness.

“The upshot is that the tribunal found the appeal is unmerited and is hereby dismissed,” the tribunal ruled.

It further noted that Paleah Stores had been afforded an opportunity to present its case to the KRA through various meetings hence it couldn’t claim unfairness.