SBM Bank Kenya is fighting off a Sh737 million tax penalty from the Kenya Revenue Authority (KRA), which relates to an agency contract the taxman had with the lender when it was trading as Fidelity Commercial Bank (FCB) before its acquisition by Mauritia’s SBM Group seven years ago.
The lender, which in May 2017 entered Kenya through the acquisition of FCB, has disclosed in its latest annual report that the KRA is demanding the amount as penalties on taxes collected by FCB on behalf of its customers in 2016. The amount was collected under a service-level agreement between the KRA and FCB.
SBM says taxes adding to Sh239.29 million were collected before the 2017 transaction in which the Mauritian lender acquired FCB. The collected amount, SBM said, was fully paid to the KRA upon the take-over.
However, SBM says the taxman raised a Sh737 million demand notice a month after the transaction, saying the amount related to accrued penalties to FCB on unpaid taxes the acquired lender had collected from its customers but delayed to remit. SBM has disputed the claim, leading to a legal tussle with the taxman.
“SBM Kenya declared a dispute in line with the provisions of the service level agreement. The bank also filed a case in the High Court seeking temporary protection against enforcement of the claim by the KRA as well as seeking direction by the Court for the dispute to be resolved through arbitration,” says SBM in the report.
The Sh737 million claim is nearly five times the Sh150.78 million net profit SBM Kenya posted in the financial year ended December 2023. SBM carries in its books an accumulated loss of Sh1.35 billion.
The lender says it has been granted temporary protection by the High Court against enforcement of the claim by KRA, with the case seeking to refer the matter to arbitration set to be heard next month.
SBM says its directors, in consideration of the underlying facts about the claim, are confident that the lender will not be found liable.
Therefore, no provision for the Sh737 million claim has been made in the financial statements for the year ended December 2023.
“The possibility and extent to which an outflow of funds will be required to settle the matter will be dependent on the outcome of the ongoing court case and the decision of the arbitrator in the event that the court directs the parties to resolve the dispute through arbitration,” said the lender.
SBM entered Kenya in May 2017 through the acquisition of FCB for a token $1 (Sh133) consideration, followed by a $20 million (Sh2.66 billion) capital injection.
The rescue deal has attracted a lawsuit from the former shareholders of FCB who are claiming Sh2.5 billion they saw was promised to be paid after the deal was completed.
SBM has rejected the claim, saying there are no additional amounts payable to the group led by businessman Sultan Khimji.
The lender expanded its business in August 2018 when it acquired certain assets and liabilities of collapsed Chase Bank Kenya for a consideration of 162,158 Mauritian rupees equivalent to Sh469,788 and a commitment to inject in $60 million (Sh7.98 billion).
The lender has run into several legal disputes in relation to the two deals. KRA had in 2019 hit the bank with a Sh400 million demand relating to the Sh9.6 billion five-year liquidity support loan it had tapped from the Central Bank of Kenya after the Chase deal. The taxman gave up on the claim in 2022 after a series of legal battles with SBM.
SBM has also been in a legal tussle with a Mauritius-based lender, Afrasia Bank, which is demanding $7.5 million (Sh997.5 million) deposits it says went down with Chase Bank. The lender has argued in court that the amount was not part of the liabilities it assumed from Chase.
The lender booked a bargain purchase gain of MUR1.3 billion (Sh3.8 billion) in the Chase deal. Chase collapsed in 2016 after suffering panic cash withdrawals by depositors and is now under liquidation.
Many creditors in Chase, including investors who had put Sh4.8 billion in the bank’s bond, have struggled to get their money back.
