Cigarette maker Mastermind Tobacco, which is owned by business tycoon Wilfred Murungi, has signed a deal with the taxman that will see it put its prime assets on forced sale to settle Sh2.9 billion tax arrears.
The Kenya Revenue Authority (KRA) and Mastermind Tobacco have filed a consent in court revealing the cigarette maker’s offer to dispose of 12 properties in a bid to raise Sh1.54 billion for partial payment of its multi-billion-shilling tax claim.
The balance will be settled in staggered installments, the consent filing signed by both parties shows.
Mastermind is understood to be in negotiations for a possible buyout by global cigarette giant Philip Morris International, but neither of the firms have so far publicly confirmed the deal.
Mr Murungi did not pick up or return our mobile phone calls Wednesday.
The taxman has agreed to withdraw a warrant of distress it had issued against Mastermind in September, instructing auctioneers to attach the company’s assets with a view to recovering the colossal sum.
The consent was yesterday adopted as the record of the court.
“The consent dated and signed by the counsel for the applicant and respondent on December 20, 2018 and filed in court on January 23, 2019 is hereby adopted as order of the court and the file is according marked as closed,” ruled Justice Pauline Nyamweya.
Mr Murungi worked as a top executive at British American Tobacco (BAT) before he quit in 1985 to take on his employer with Mastermind Tobacco.
The business has made Mr Murungi one of the wealthiest Kenyans and is estimated to employ about 1,000 workers.
It pays an average of Sh2 billion in taxes annually.
According to documents filed in court, KRA is seeking Sh1.67 billion as excise duty and VAT, and has imposed Sh815.5 million as interest and penalties on this amount.
Separately, the taxman is also seeking Sh399.98 million as excise duty and interest of Sh42.29 million for the period October 2007 to June 2008, bringing the total claim against the firm to Sh2.93 billion.
Mastermind will pay Sh100 million upon filing of the consent in court, upon which KRA will issue it with excise stamps for a period of one month once it receives this first installment.
The cigarette firm, known for its Supermatch brand, was supposed to pay Sh20 million on January 20, and similar amounts every subsequent month.
The firm will also pay Sh100 million by April 30, 2019.
The monthly installments will be increased from Sh20 million to Sh50 million in the event the sale of the properties fails to fetch the targeted amount of Sh1.54 billion.
The consent allows KRA to take action to collect the tax in the event the firm breaches terms of the agreement while Mastermind reserves the right to seek a waiver of interest and penalties once the tax due has been paid in full.
Mastermind moved to court in October after KRA sent auctioneers to seize its assets over the company’s failure to pay tax arrears.
KRA sent a notice of distress on September 19 and instructed auctioneers to attach the assets with a view to recovering the colossal sum.
The consent will come as a huge relief for the firm.
Mastermind at the time said attaching of its assets would kill its business.
Leakey’s Auctioneers moved in and gave Mastermind 10 days to settle the arrears or have its property sold by public auction.
The company went to court seeking orders suspending the demand, pending determination of an appeal it had filed at the Tax Tribunal.
The High Court issued orders stopping KRA from seizing or auctioning Mastermind’s assets pending determination of the case, but the parties opted for an out-of-court settlement.
The cigarette firm argued that although the tribunal has power to suspend the demand, it lacked quorum because only the chairman is in office, following the expiry of other members’ tenure in March.
Mastermind accused KRA of failing to give it an opportunity to be heard, noting that the demand notice was received on August 31, 2018 and the attachment of its property commissioned three weeks later.
The firm claimed that KRA had on August 31 made an initial demand for Sh111 million but the figure suddenly grew to Sh1.9 billion three weeks later on September 19.
But according to the consent filed in court, the outstanding tax arrears and penalties are Sh2.9 billion.
Mastermind was in 2015 among the companies that were temporarily stopped from producing cigarettes for the domestic market pending resolution of a long-running excise tax licence row with KRA.
In October last year, Mastermind lost the battle to stop KRA from recovering Sh442.2 million in unpaid taxes after the Court of Appeal upheld the High Court’s decision on the same matter.
The company had gone to court challenging the taxman’s decision to demand the money as under-declared excise tax and penalty on its Supermatch brand.