The Kenya Revenue Authority (KRA) has been allowed to pursue Sh568 million in tax from a grain miller after a judge ruled that the company failed to explain the massive deposits made to a whistleblower’s bank account.
The monies, according to High Court judge Alfred Mabeya, were eventually transferred from the whistleblower’s bank account or withdrawn and moved to Eldoret Grain Ltd's managing director, Swaleh Ahmed Taib.
Justice Mabeya overturned a decision of the Tax Appeals Tribunal that found that the taxman had no basis for taxing the grain miller on the basis of bank deposits held in an account of a third party, Ibrahim Ratemo Magonga, the whistleblower and who was a sales representative at the company.
The tribunal had held that it was only Mr Magonga who could prove whether the funds deposited in his account were taxable or not.
Justice Mabeya, however, overturned the ruling and said the burden shifted to the grain miller, once the taxman showed that the bank accounts were opened in the name of Mr Magonga, an employee and the firm’s operations manager- Mr Mohamed Bajoh was a signatory to it.
“Its principal officer (Mr Bajoh) could not be operating an account with one of its lowly paid employees (Mr Magonga) then argue that that the officer was not acting on its behalf,” the judge said. He added; “In this regard, I am satisfied that the conclusions of the tribunal were not correct and were not supported by the law.”
Evidence adduced in court showed that the KRA received information from Mr Magonga in 2011, which led to investigations against the miller.
The taxman said investigations revealed that Mr Magonga had made deposits of more than Sh420 million in his two bank accounts at KCB. The deposits were allegedly recorded as sales in the company’s books.
It later emerged that Sh11 million was transferred to Mr Taib on the company’s instructions. The court further heard that Mr Magonga withdrew the money and either handed over the cash to Mr Bajoh or deposited it into Mr Taib’s bank account.
According to the KRA, this was a tax evasion scheme as it defied logic that Mr Magonga, who earned a salary of Sh17,000 then, would be engaged in multi-million-shillings businesses with such huge deposits, with the full knowledge of the firm's managing director and the operations manager, and still remain working.
The taxman then issued an assessment of Sh567.9 million for the period 2005 to 2010. The firm objected to the assessment and the matter was referred to the now defunct Income Tax Local Committee, which dismissed the appeal.
It was later referred to the tribunal, which ruled in favour of the taxpayer forcing KRA to appeal to the High Court.
The company maintained that it was wrong for the taxman to treat an employee’s deposits to be the income of the grain miller, yet the firm had nothing to do with it.
It later emerged that Mr Magonga was charged before an Eldoret court seeking the recovery of Sh654,590 but KRA said this was an afterthought and a bid to cover up the scheme because there were other letters from other customers, which the company did not pursue.
Mr Bajoh had claimed that Mr Magonga requested him to be a signatory to his account in order to assist him with his transport business while he travels. But the court said the explanation did not hold water.
