NAIROBI, Kenya, Aug 12 – The High Court in Nairobi has reinstated a Sh29.2 million tax assessment against Jakoline Enterprises Limited after overturning a decision by the Tax Appeals Tribunal that had cancelled the liability.
The assessment issued by the Kenya Revenue Authority (KRA) comprises Sh14.48 million in Income Tax and Sh14.73 million in Value Added Tax (VAT) for the period between 2017 and 2020.
The High Court set aside the Tribunal’s November 10, 2023 decision and reinstated the Commissioner’s objection decision confirming the tax liability.
The case arose from discrepancies between purchases declared by Jakoline Enterprises in its Corporation Tax returns and those reported in its monthly VAT returns.
The court found that the company was required to specifically explain and reconcile the discrepancies rather than simply provide financial records to KRA.
Jakoline Enterprises, a wholesale foodstuffs business, was subjected to a desk audit by the Commissioner of Domestic Taxes covering its Income Tax and VAT returns for 2017 to 2020.
According to the Tax Appeals Tribunal judgment, the audit identified differences in the company’s declarations. In 2017, purchases reported under VAT were higher than those declared in the Corporation Tax return by Sh115.05 million.
The company argued that the purchases were supported by suppliers’ invoices and that the difference did not represent a loss of tax revenue. It also disputed KRA’s calculation of expected sales based on the purchase variance, arguing that purchases were not the only costs incurred in running the business and that goods could be sold at different margins or remain unsold.
For 2018, the company said purchases in its Corporation Tax and VAT returns had been reconciled, apart from general expenses amounting to Sh8.65 million that had been captured as purchases in its financial statements.
For 2019, Jakoline attributed a Sh20.1 million difference to zero-rated purchases that had not been included in its VAT returns. The company also provided an analysis of the 2020 variance.
KRA issued additional assessments on May 11 and May 16, 2022, for Income Tax and VAT respectively. Jakoline lodged notices of objection on June 15 and 16, 2022, which were admitted as late objections after KRA requested supporting documents.
KRA subsequently sought additional information before issuing an objection decision on August 29, 2022, confirming the assessments.
Jakoline then appealed to the Tax Appeals Tribunal, arguing that it had provided documents supporting its objection, including accounting records, purchase invoices, schedules and bank statements.
The Tribunal found in favour of the company in November 2023, holding that Jakoline had discharged its burden of proof. It noted that KRA had acknowledged receiving the documents and concluded that the tax authority should have reviewed them and verified the discrepancies.
KRA challenged the decision before the High Court.
In determining the appeal, the High Court considered whether a taxpayer could discharge its burden of proof by providing financial records or whether it was required to identify the specific records and information explaining the discrepancies.
The court found that the Tribunal had erred in concluding that the documents provided by Jakoline were sufficient to discharge its burden of proof.
The High Court consequently allowed KRA’s appeal and set aside the Tribunal’s judgment of November 10, 2023.
It also reinstated the Commissioner’s objection decision dated August 29, 2022, confirming the Sh29.21 million tax assessment against Jakoline Enterprises.
The court ordered each party to bear its own costs of the appeal and the proceedings before the Tribunal.
