The High Court has annulled a Treasury directive offering London Distillers (LDK) a tax compromise that would have seen the company pay Sh80 million out of a Sh517 million claim.
Justice Alfred Mabeya ruled that it was illegal for Treasury CS to grant the company's request for lower taxes since only the Commissioner can invoke the provision for tax to be abandoned.
The Court dismissed Treasury’s directive abandoning taxes as per section 37 of the Tax procedures Act allowing the company to pay only 20 percent of tax arrears or Sh80 million.
The judge said Treasury had overstepped its mandate and abused its power by granting the tax compromise.
“Treasury had no business to purport to allow the abandonment of 80 percent of the admitted taxes. That was extreme abuse of power on the part of Treasury,” the judge said.
The court heard that London Distillers failed to remit taxes after a self-assessment of January 2020 to August 2021 tax returns.
LDK attempted to negotiate with the Kenya Revenue Authority (KRA) before seeking intervention from Treasury.
Treasury CS issued a directive allowing the company to pay only 20 percent of tax arrears or Sh80 million that initially went uncontested by the taxman. The chairman of the firm Mohan Galot said he write to the CS Treasury on September 15, 2021, seeking the waiver of the amount.
The application was allowed and 80 percent of the principal amount was abandoned and the Treasury waived 100 percent of penalties and interest.
KRA made an about turn and demanded full taxes within a week prompting LDK to sue to block KRA from demanding the entire amount and instead compel the taxman to accept payment of Sh80 million.
The judge said the Treasury purported to exercise a power it did not have. He also defended the KRA saying it did not act maliciously by rescinding the Treasury’s decision.
“The respondent, being the master of taxes and tax laws, had a duty to evaluate the application for abandonment of taxes vis a vis the statutory requirements to be met before such approvals are issued,” he said.
KRA decided to review the decision that would have seen LDK pay only Sh80 million in weekly installments of Sh7.5 million from February 2, this year after an advisory from the Attorney General.
The taxman wrote to Attorney General Kihara Kariuki on the legal position on the procedure for abandoned taxes. Mr Kariuki said the process is supposed to be initiated by the Commissioner and if he determines that the application meets the threshold, approval is sought from the CS Treasury.
The CS Treasury later agreed with KRA and rescinded the approval by the principal secretary. KRA rescinded the decision and demanded the entire amount within one week. Mr Galot said the decision was arbitrary and KRA had unilaterally assumed the powers of the Treasury.
By the time the case was filed, the distiller had paid Sh55 million.