Taxman deploys auctioneers to sell Mastermind assets

The Kenya Revenue Authority (KRA) has sent auctioneers to seize the assets of cigarette maker Mastermind Tobacco over the company’s failure to pay Sh1.99 billion tax arrears.

Mastermind Tobacco, which is owned by tycoon Wilfred Murungi, has disclosed in court papers that the taxman sent a notice of distress on September 19 and instructed auctioneers to attach the assets with a view to recovering the colossal sum.

“If executed, the attachment of the applicant’s business assets will permanently destroy the business on the basis of an arbitrary, unlawful, unjustified and unreasonable demand for taxes that are not due,” Mastermind’s company secretary Robert Mutuma says in an affidavit filed in court.

Mastermind, which makes the Supermatch brand of cigarettes, said it is apprehensive that unless restrained the auctioneer might attach its entire assets and destroy its business permanently. Leakey’s Auctioneers have already moved in and given Mastermind 10 days to settle the arrears or have its property sold by public auction.

Mastermind went to court seeking orders suspending the demand, pending determination of an appeal it has filed at the Tax Tribunal.

The cigarette firm argues that although the tribunal has power to suspend the demand, it lacks quorum because only the chairman is in office, following the expiry of other members’ tenure in March.

Mastermind has 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 claims that KRA had initially on August 31 demanded Sh111 million but the figure suddenly grew to Sh1, 999,632,858 three weeks later on September 19. Mastermind disputes the sum.

At the centre of the dispute are unpaid excise duty amounting to Sh1.720 billion, VAT arrears of Sh44.5 million and Sh40.9m PAYE arrears, all adding up to Sh1.8 billion.

The arrears have further accumulated interest of Sh193.5 million taking the total to Sh1.9 billion. Mastermind claims the dispute with KRA dates back to October 19, 2017 when it received a demand notice of Sh368.5 million.

The tobacco firm says it reached an agreement with KRA to pay the arrears in Sh30 million monthly installments, but KRA sent a fresh demand notice amounting to Sh640 million on January 3, 2018 without acknowledging the amounts paid under the earlier arrangement.

In March, KRA allowed Mastermind to clear outstanding tax arrears of Sh328 million through Sh80 million monthly installments. KRA on August 7 informed Mastermind that the arrears stood at Sh218 million before making the latest demand of Sh1.9 billion, which has threatened the existence of the company. The dispute rekindles the long-running battle that Mastermind has over the years had with the taxman.

In 2015, Mastermind was among the companies that were temporarily stopped from producing cigarettes for the domestic market pending resolution of its 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 of cigarettes.

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 and pays an average of Sh2 billion in taxes annually