Firms opt for out-of-court talks in battle with KRA

The Kenya Revenue Authority (KRA) has opened talks with a number of firms for an out-of-court settlement to unlock Sh7 billion in tax arrears without bearing the heavy burden of litigation.

Mastermind Tobacco, Darasa Investment, Kenya Pipeline Company (KPC) and Chinese-owned Housemart Co Limited have all resorted to negotiations with the taxman, reversing their earlier decision to seek court orders stopping the KRA from acting against them.

The KRA in 2015 set up a special unit to handle tax disputes in an effort to clear a backlog of cases involving billions of shillings.

The tax agency then said that its alternative dispute resolution (ADR) division would guarantee the taxpayers confidentiality that was lacking in the open courts.

“The negotiations are ongoing and we request to come back for a mention on December 5, 2018 to record a consent or report on progress and extension of the orders,” Mastermind Tobacco’s lawyer told the court with the agreement of KRA’s counsel.

Auctioneers

Mastermind Tobacco, owned by business tycoon Wilfred Murungi, is negotiating to settle a Sh1.99 billion tax dispute.

The cigarette maker had sought the court’s protection after the KRA sent auctioneers to seize its assets over alleged failure to pay tax arrears.

The firm said the taxman sent a notice of distress on September 19 and instructed auctioneers to attach its assets with a view to recovering the colossal sum.

Mastermind Tobacco, which makes the Supermatch brand of cigarettes, said it was apprehensive that unless restrained, the auctioneer would attach its entire assets and destroy its business.

The auctioneers had moved in and given Mastermind Tobacco 10 days to settle the arrears or have its property sold by public auction, prompting the firm to rush to court.

The KRA in September agreed to release 40,000 metric tons of sugar owned by Darasa Investment that is at the centre of a Sh2.5 billion tax dispute.

The taxman reached an out-of-court settlement with Darasa Investment to clear the Sh2.5 billion duty and VAT arrears.

The tax was subject of a long-running court battle that saw the Supreme Court in May stop the KRA from demanding the Sh2.5 billion from the sugar importer.

Darasa Investment had contested the tax arguing that it had shipped in the sugar during the tax waiver period granted last year.

It has also emerged that KPC is in talks with the taxman to settle a Sh174 million tax dispute linked to two firms that were awarded a Sh1.1 billion design contract for the Nairobi-Mombasa pipeline.

Temporary orders

KPC moved to court and obtained temporary orders stopping the demand after the taxman instructed five commercial banks to remit the tax from its accounts.

The taxman is holding KPC liable for tax due from Sheng Li Engineering and Consulting Limited and Kenya-based Kurrent Technologies, a consortium that was awarded the tender to design the project in 2012.

A suit filed by Chinese firm Housemart over Sh2.2 billion has been marked settled after the parties recorded the consent.

The deal saw Housemart pay Sh100 million upfront pending further assessment.

Housemart, an importer of a range of goods including construction materials and household commodities, moved to court after the KRA froze its bank accounts demanding Sh2.2 billion tax arrears amid allegations that it was using seven other companies to divert funds to reduce its tax obligations.