Electricity generator KenGen’s #ticker:KEGN failure to pay a tax arising from its backdated dividends in 2016 has seen the amount it owes the Kenya Revenue Authority (KRA) rise to Sh3.3 billion.
The power producer in 2016 paid the Treasury a dividend of Sh5.7 billion, setting off the compensating tax which is triggered when a company makes distributions out of profits that have not been taxed at the standard rate.
The special tax, levied at a punitive rate of 42.8 per cent, is meant to discourage companies from distributing tax benefit to shareholders.
KenGen had benefitted from billions of shillings worth of investment deductions in construction of new power plants, a move that lowered its effective tax rate below the normal 30 per cent.
The distribution attracted a compensating tax of Sh2.4 billion of which the company paid only Sh100 million in the year ended June, according to disclosures in its latest annual report. Penalty and interest on the balance of Sh2.3 billion has risen to Sh963.3 million, taking the total liability to Sh3.3 billion.
KenGen did not provide for the penalty and interest in its financial statements in the review period, arguing that it is lobbying the government to rescind the claim including the original principal tax.
“No provision has been made with regards to penalty and interest estimated to be Sh963.3 million as at June 30, 2018,” the company says in its annual report.
“The company has applied for abandonment of principal, penalty and interest from the National Treasury and Planning. The directors are confident of a favourable outcome and therefore are of the opinion no provision is required with regards to interest and penalty.”
The Auditor-General’s office said it has reviewed KenGen’s correspondence with KRA on the matter, adding that it is difficult to estimate what impact its resolution will have on the company’s financial statements.