According to KRA, CGEAL was referred for investigations following receipt of intelligence that CGEAL, a dealer in wholesale purchase and resale of LPG gas, was under-declaring its sales for tax purposes.

The investigations were carried out in the year 2019 (for the period 2010-2019) to confirm the veracity of allegations and, in particular, whether CGEAL had declared its income for tax purposes.

KRA shared its findings vide a letter dated 16th June 2020 informing CGEAL that a variance of Kshs. 2,884,665,110.00 had been established between the declared income and the banking/sales, and the same had been brought to charge with resultant Corporation tax of Kshs. 895,651,814.00.

The parties had a series of engagements thereafter culminating in the issuance of assessments on 9th March 2021 requiring CGEAL to pay the assessed taxes amounting to Kshs. 398,448,341.00 being Corporation Tax due.

CGEAL lodged an objection on 26th March 2021, giving grounds for consideration together with corresponding documents.

KRA issued an objection decision on 25th May 2021, confirming that principal taxes of Kshs. 398,448,341.00, being Corporation tax was due and payable by CGEAL.

CGEAL appealed to the TAT

GGEAL averred that:

  • the same officers involved in investigations were the same ones involved in reviewing the objection, hence making a mockery of the rules of natural justice and principles of fair administrative hearing. That CGEAL expressed its reservations vide a letter dated 6th May 2021.
  • during the objection review, KRA did not prove that there was fraud for the period beyond 5 years.
  • KRA also relied on the annual indicative sales amount claimed to have been obtained from EPRA to derive the alleged sales. That KRA’s allegation that CGEAL had undeclared taxable income was malicious and without any basis in law
  • instead of using actual sales figures provided by CGEAL, KRA went on a fishing expedition and used both the wrong quantities, the wrong selling prices, and therefore giving rise to a ridiculous sales figure. That for the quantities, KRA wrongly assumed that all the purchases /stock was depleted/sold and as for the selling prices. That KRA ignored the daily sales as provided by CGEAL and instead purported to use prices allegedly given by EPRA..
  • CGEAL has no retail shop and relies on wholesalers to get its product to the market. It is almost impossible to get a universal selling price for LPG as it differs depending on the brand, and it fluctuates from time to time.
  • at the time of writing his witness statement, Mr. Bare indicated a 13kg cylinder of Total Gas was retailing at Kshs. 3500 while that of CGEAL’s gas was retailing at Kshs. 2700. That the profit margin is actually Kshs 3 per kilogram or lower.

KRA responded that:

  • KRA is not restricted in the scope of investigations, and the Commissioner may delegate such powers to any authorized officer in exercise of his/her powers, including the conduct of investigations and the rendering of objection decisions
  • KRA acted in line with the provisions of Section 29(6) of the Tax Procedures Act which grants KRA statutory power to consider a period out of the five years in cases of gross or willful neglect, evasion of tax or fraud by a taxpayer.
  • in conducting the investigations, KRA carried out several tests to establish the taxes payable including; analysis of CGEALs’ declarations on iTax and as per soft documents provided by CGEAL, analysis of third party information from CGEAL’s bankers, EPRA and customers to corroborate the data in the internal databases.
  • in addition, for the years 2012 to 2015, other than the bank statements available, CGEAL stated that it did not have the documents and therefore, requested the use of 7% gross margin as basis for computing cost of sales. That the 7% computation does not constitute primary documents. Hence, the Commissioner had to use the relevant indirect method.
  • KRA exercised its best judgment appropriately in arriving at the tax assessment. That CGEAL failed to discharge its evidentiary burden of proof in demonstrating that the assessment by KRA was in any manner incorrect or excessive

In its ruling on 17/03/2023, the TAT observed that:

  • the allegations of fraud had not been proven, and therefore, KRA erred in law and, in fact, by issuing assessments for the years 2012- 2015, which periods are outside the statutory timelines provided by the law.
  • CGEAL had discharged the burden of proof in line with Section 30 of the Tax Appeals Tribunal Act that the assessment was excessive and that the tax decision should have been made differently. The Tribunal, therefore, found that KRA erred in law and, in fact, by relying on information allegedly supplied by EPRA as no evidence was adduced before the Tribunal on the source of that information.

As such, CGEAL won


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