London Distillers (K) Ltd has won a Sh3 billion tax dispute against Kenya Revenue Authority (KRA) after a five-member tribunal allowed an appeal filed by the alcohol manufacturer.
The tax appeals tribunal quashed the demand by the taxman saying KRA failed to prove claims of tax evasion against the manufacturer, as required by the Evidence Act.
The tribunal said it was not convinced that an input-output analysis of bottles, without considering actual production data at the factory as claimed by KRA, was a conclusive basis for raising of the tax assessment.
“The tribunal is also aware of the glaring fact that in as much as the respondent (KRA) has computed an assessment based on bottles purchased and used, the respondent has neither stated how the product that was supposedly packaged in the said bottles was produced nor whether the said product was sold in the market with or without excise stamps,” the tribunal chaired by Eric Wafula said.
The taxman said it conducted investigations into the manufacturers’ tax affairs between 2019 and 2020, focusing on banking, excise stamps and bottles.
The tribunal heard that a summary of income declared against banking, income reconciliation, excise stamps reconciliation, input-output analysis of bottles and the overall taxable sales gave rise to a tax liability of Sh2.6 billion.
The taxman also added interest and penalties of Sh914 million bringing the total amount to Sh3 billion.
According to KRA, an analysis of the manufacturers’ bank account showed a 66 percent increase in deposits between January 2018 and August 2018 compared to the same period the previous year.
Further, the said bank deposits came at a time when the Central Bank of Kenya conducted the demonetisation exercise pointing to the likelihood of illicit financial flows.
The firm defended itself saying it does self-assessment every year and files returns, which was acknowledged by KRA.
The company argued that KRA cannot be allowed to hide sections of the Tax Procedures Act to ambush it five years later with tax assessment based on assumed production and income without demonstrating claims of malpractice.
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