Economy

Ndii set to pay KRA Sh2.8m in tax row

ndii

Dr David Ndii. FILE PHOTO | NMG

Kenya Revenue Authority (KRA) has won a tax fight against economist David Ndii after the High Court directed him to pay VAT of Sh2.8 million for his income between 2011 and 2015.

The dispute centered on whether KRA erred by not informing Dr Ndii in writing that his business has crossed the Sh5 million annual sales mark, and that the economist was expected to collect VAT and remit to the taxman.

Justice David Majanja ruled that the economist had a duty to register as a VAT collection agent despite lack of evidence of KRA having notified Dr Ndii of reaching the Sh5 million threshold.

The Tax Appeal Tribunal declared the VAT claim invalid since KRA had used the wrong procedure to notify Dr Ndii of his tax dues, prompting the taxman to sue at the High Court.

“I also hold that while notification of registration by the Commissioner is a mandatory requirement, it does not invalidate the effective date of registration in light of the duty imposed on the taxpayer to register for VAT once it has reached or expects to reach the threshold for registration,” the judge said.

KRA issued a notice to Dr Ndii in December 2017 demanding a total of Sh11, 395,591 arising from income tax estimated at Sh8.4 million and another Sh2.9 million arising from VAT, triggering a dispute at the tribunal.

The income tax dispute was settled in an out-of-court deal while the Sh2.9 million VAT claim was later reduced to Sh2.8 million.

In March 2020, the tribunal chaired by Josephine Maangi dismissed the assessment by KRA and quashed a demand of Sh2,807,758.

In the ruling, the tribunal said that although Dr Ndii did not contest the assessment of the VAT, KRA had erred by failing to notify him through writing, a mandatory requirement.

KRA told the High Court that it notified Dr Ndii of VAT registration through an automated email.

The taxman reckons the economist cannot plead ignorance yet he participated in negotiations that settled other matters relating to his income.

“In this case, the audit revealed that the Respondent was required to apply for registration in the year 2014 which is also the effective date set out in the certificate,” Justice Majanja said.

The tax assessment was carried out in September 2015 at a time when Dr Ndii had stepped up his criticism of the Jubilee administration and President Uhuru Kenyatta.

He was at the time a prominent strategist for the opposition National Super Alliance (Nasa), which was headed by ODM leader Raila Odinga.

Dr Ndii has since fallen out with Mr Odinga after the opposition leader reached a truce with President Kenyatta.

KRA demanded that Dr Ndii pay VAT because his business had annual gross earnings that surpassed Sh5 million.

Dr Ndii was not registered as a VAT agent and KRA went ahead and listed him, prompting the Sh2.8 million demand.

The court heard that KRA had accessed Dr Ndii’s bank accounts to establish his financial dealings.

Banks now form a key plank in KRA’s latest approach that emphasizes on data gathering from third parties like the motor vehicle registration unit, property approval agency and Kenya Power bills in the war against tax evasion.

The information sought includes account balances and flow of income. This enables authorities to check whether taxpayers have correctly declared their income.

The Tax Procedures Act compels all such third parties to share information with the taxman. Those that defy KRA’s orders are liable to a fine of Sh1 million or a jail term of three years or both should they fail to provide details to the taxman.

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