Eastleigh Mall Wins Sh360M Tax Fight with KRA

Following the High Court’s decision to reject a ruling ordering the owners of Eastleigh Mall Ltd to pay the money resulting from corporation tax, the Kenya Revenue Authority (KRA) incurred a loss of more than Sh360 million.

According to Justice Alfred Mabeya, the taxman’s inability to raise an objection to the taxpayer’s claim within the legally mandated 60-day period resulted in the objection being upheld.

The judge ruled that the deadlines set forth in section 51(11) of the Tax Procedures Act must be followed and are not merely formalities.

“They are not cosmetic. Parliament in its wisdom knew that in matters of tax, time is very crucial as those in commerce need to make informed decisions. If the commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the taxpayer would be unable to make crucial decisions and plan his/her business properly,” the judge said.

The KRA investigated the company’s activities for the years 2008 to 2015 for rent income for corporation tax, VAT on commercial rent, and pay as you earn (PAYE) on the employees’ salaries, according to evidence given in court.

On June 16, 2015, the KRA raised an assessment of Sh386,701,864 through a letter.

On April 28, 2017, the company raised a protest and acknowledged the assessment of Sh22.2 million in corporate tax, Sh140,965 in PAYE, and Sh2.7 million in withholding tax.

The Tax Appeals Tribunal received a corporation tax assessment from Eastleigh Mall as well. In a ruling issued in July 2020, the tribunal dismissed the appeal and upheld KRA’s assessment.

The corporation subsequently filed a complaint with the High Court, accusing the tribunal of failing to take into account the points it had presented and of using wrong analysis in reaching its decision.

The tribunal, based on Eastleigh Mall, erred by failing to recognise the deadlines outlined in the Act because the objection ruling was delivered after the passing of 60 days.

The company claimed that because the objection judgment was not made in a timely manner, their objection had been granted.

The KRA presented an argument requesting the court to look beyond technicalities and for substantive justice, and the tribunal had noted that the reason for the late objection was due to the fact that the parties were involved in conversations and it was guided by the Constitution, to do substantive justice.

The tribunal’s ruling was overturned by Justice Mabeya on the grounds that the taxpayer’s objection had been accepted because the decision on the objection had not been made within 60 days.