A Nairobi-based electronics dealer, with a shop located along Luthuli Avenue, has been ordered to pay the Kenya Revenue Authority Ksh700 million after a tribunal found him guilty of tax fraud.
In a statement released by KRA on Monday, August 24, the Tax Appeals Tribunal upheld Kenya KRA’s investigations and assessment of undeclared tax amounting to over Ksh700 million against the electronics dealing firm – Digital Box Limited.
KRA successfully defended its investigative processes and application of various legal provisions after Digital Box Limited challenged the process that led to the discovery of undeclared income.
Digital Box Limited had appealed to the Tax Appeals Tribunal challenging KRA’s decision to assess and demand the undeclared tax liabilities (Kshs 481 million in income tax and Kshs 219 million in value-added tax for sales respectively).
It also sought orders from the Tribunal to quash KRA’s assessment issued on April 28, 2017, and the objection decision dated June 6, 2017.
KRA submitted before the Tribunal the detailed steps that were taken and how it arrived at the outstanding tax arrears. The investigation’s process involved conducting court-sanctioned searches to obtain vital transaction records at the company and at the director’s residence for examination and analysis.
The authority’s position was that it carried out a test to check on whether all sales were banked through a comparative analysis of the bankings with the sales from the delivery note books.
Digital Box Limited was found to have failed to declare, pay its tax liabilities and file tax returns for the year 2016 but challenged KRA’s assessment alleging that it had misapplied the banking analysis test to establish the company’s tax liabilities.
KRA had discovered during investigations that there was significant variance between the sales declared by the firm for tax purposes and the amounts banked in its accounts as proceeds of sales.
The investigations further disclosed that the company purchases for the period 2011 to 2013 were lower than the figures stated in the taxpayer’s accounts.
The firm while disputing the tax assessments stated that KRA based its decision on extraneous considerations to arrive at the tax assessments. The Tribunal observed that the firm failed to prove that the KRA had misapplied the bank analysis test and ruled that KRA did not err.
In its judgment, the Tribunal held that the banking analysis test also known as the bank deposit analysis is an acceptable method of arriving at a tax assessment and that KRA had properly applied it.
The Tribunal further held that the taxpayer had failed to specify the entries in bank statements which should not have been included in the assessment and the reasons why they ought not to have been included. The Tribunal further found that Digital Box Limited had failed to discharge its burden of proving that KRA had misapplied the bank analysis test.
In 2019/20, KRA hit a new record high in the collection of tax despite the Covid-19 pandemic which has seen multiple sectors of the economy shrink.
The authority amassed Ksh1.607 trillion for the financial year 2019/2020 as compared to Ksh1.580 trillion collected over the same period between July 2018 and July 2019. However, it still missed its initial target by Ksh275 billion.
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