jose @wast047

The engagement on this post (see quoted tweet) on the Tax Appeals Tribunal's judgement on Appeal No.E1116/2024 (Kirin Pipes Limited vs KRA Commissioner Intelligence Strategic Operations Investigations & Enforcement) regarding deposits to one's bank account being deemed income & thus taxable has been massive. The question has been asked recurrently, suppose Kirin Pipes Limited had its books in order in adherence to Sec56(1) of the Tax Procedures Act, was there a chance the outcome would have been different? Of course, it would be pegged on the strength of the documentation but I guess we can infer from a similar case where the Tax Appeals Tribunal's judgement was in favour of the appellant (i.e. favoured the taxpayer & not KRA). So let's whip through it very briefly: · The case is Appeal No.E021/2023 Heineken East Africa Import Company Ltd vs KRA Commissioner of Investigation & Enforcement · Part of the issue at hand was that KRA had resorted to using banking deposits analysis to determine Heineken East Africa's taxable income under the Income Tax Act & taxable supplies under the VAT Act · As a result KRA had slapped Heineken East Africa with an assessment translating to Kes 197,260,962 worth of Corporate Income Tax; Kes 245,637,030 worth of VAT & Kes 59,362,867 worth of Withholding Tax · In total, KRA's demand from Heineken East Africa stood at Kes 502,260,859 Verdict: · Unlike the case of Kirin Pipes Ltd where KRA's tax assessment based on bank deposits was upheld by the Tax Appeals Tribunal, the Authority's case against Heineken East Africa was thrown out & here's why · The Tribunal established that Heineken East Africa had forwarded all relevant accounts payables & accounts receivables for the audit period to KRA. The issue therefore became a question of variances arising from the difference between the expected sales as per the bank statements/deposits & reported sales as per IT2C for Income Tax & sales as per VAT3 for VAT · The Tribunal observed that to respond to KRA's question regarding the variances between bank deposits & IT2C & VAT3, Heineken East Africa provided a reconciliation summary of non-sale items including FX Transfers, bounce back payments & Inter-company Transfers · The Tribunal observed that whereas Heineken East Africa had demonstrated that it did provide documents & analysis of non-income items that created the variance, KRA failed to address these specific issues · The Tribunal therefore threw out KRA's case arguing that the Authority solely relied on bank deposits analysis despite the fact that Heineken East Africa had at all time provided all the documents requested by the Authority · The Tribunal states that its reason for throwing out KRA's demand on Heineken East Africa was that reliance on bank deposits analysis alone risks resulting in the Authority collecting more than is due · The Tribunal also stated that "once Heineken East Africa provides all the documents KRA requested for in relation to the Income tax & VAT, KRA had the obligation to determine the tax liability of the Heineken East Africa based on the documents or ask for additional documents if not satisfied" So what's my take home from all this? · Sec56(1) of the Tax Procedures Act is very clear, the burden of proof always lies with the taxpayer. So get your books in order · Your story must be consistent from start to finish, & it must be backed by verifiable documents · If you can, try as much as it is legally possible to close issues with the Authority at the audit stage. Hii maneno ya "see you in court" can be a rabbit hole you will regret getting into

Julians Amboko @AmbokoJH

a year ago

In what circumstances can KRA deem all deposits into your bank account as income & therefore taxable? The judgement on appeal E1116/2024 (Kirin Pipes Limited vs KRA Commissioner Intelligence Strategic Operations Investigations & Enforcement) before the Tax Appeals Tribunal is