The High Court on 19th May 2022 overturned the decision of the Tax Appeals Tribunal (TAT) that ruled that the Muga Developers Ltd were not liable to pay tax assessed by Kenya Revenue Authority (KRA).
Muga Developers Ltd, whose principal shareholder is the Suraya Property Group Limited, constructed and developed a total of 756 housing units known as Fourways Junction located off Kiambu Road. Out of the 756 Units of Phase 1 and 2, 695 units were completed and sold while phase 3 had ongoing off-plan sales for 152 units.
An audit by KRA revealed that the developer failed to declare income from the unit sales, under declared gross turnover and failed to file corporate income tax returns for the period 2014 to 2017. The developer requested KRA to file the returns and was allowed. Based on the tax returns filed, KRA assessed additional tax for the period amounting to KShs. 3.5 billion. The developer sought from KRA and was granted permission to file a late objection to the additional assessment but was required to provide tax records including all the tax computations, all trial balances in respect of the management and final accounts. KRA also demanded from the developer, all gross revenue accounts, debtors accounts and creditors accounts ledgers, all the cash books, all revenue recognition accounts and any other important records, documents, accounts and reconciliations.
Despite the taxpayer being granted an opportunity by KRA to provide tax records to support its objection to the tax assessments, it failed to provide all the required documents and appealed to the TAT. The TAT ruled in favour of the taxpayer that KRA should have used industry figures in issuing tax assessments to the developer based on a review of the tax compliance status of the top fifteen real estate developers. KRA appealed the decision of the Tribunal to the High Court.
The High Court in issuing its judgment on 19th May 2022 stated that the developer failed to produce documents as required by tax laws to demonstrate that the additional assessments together with accrued penalties and interest were incorrect. The Court stated that once KRA made the additional assessments based on the filed tax returns, then the burden was on taxpayer to disprove Commissioner’s decision. The Court in its judgments states as follows;
“What the Respondent (Muga Developers Ltd) cannot escape from is that it never provided all the documents sought. I do not hear the Respondent complaining that the documents and information was not available, could not be found or that the request was unreasonable. On the contrary, the documents and information sought by the Commissioner are within what is normally kept in businesses of the nature carried out by the Respondent.”
The court granted the taxpayer sixty (60) days from the date of the judgment to furnish KRA with all the documentation and information requested by the Commissioner failure to which KRA shall enforce collection of the assessments of KShs. 3.5 billion.