Tribunal faults tax claim against tycoon’s road construction firm

The dispute stemmed from additional VAT and income tax assessments issued on January 29, 2024, covering Nyoro’s tax affairs for 2017 to 2021. Nyoro objected and later appealed after KRA confirmed the assessments.

The construction company owned by businessman Josiah Njoroge Njuguna was founded in 1983 and works on highways, civil works, real estate, and hotel projects.

While challenging the tax assessment, the company argued that the Kenya Revenue Authority (KRA) had reopened years that were already outside the legal window, disallowed genuine business expenses, rejected input VAT despite supporting invoices, and failed to account for casual labour costs.

KRA maintained that Nyoro had failed to provide documents supporting some expenses and that the law allowed it to assess older years where there was fraud, tax evasion or wilful neglect.

The tribunal rejected that justification for the older assessments, saying KRA had to produce evidence supporting those allegations.

“It would be most unfair to cause a party to respond to mere averments and accusations not supported by any thread of evidence,” the tribunal said, allowing Nyoro’s appeal.

It found that the 2017 income tax assessment and VAT assessments for 2017 and 2018 were time-barred. The tribunal said VAT assessments could run back only to December 2018, while income tax assessments could reach back only that year.

It held that KRA could not go back beyond five years to assess Nyoro for 2017 income tax and 2017–2018 VAT because it produced no evidence to substantiate its claim that the company had engaged in fraud, tax evasion or willful neglect.

The tribunal then examined the assessments that remained within time and found problems with KRA’s treatment of Nyoro’s records.

On input VAT, the tribunal said Nyoro had produced invoices from Harmony Enterprises, Gosteen Enterprises, Dakimah Hardware and Paints, Super Deal and Colas East Africa.

KRA had maintained that the documents had not been provided, but the tribunal found that they were in Nyoro’s supplementary statement of facts.

The Tribunal said KRA was allowed to respond to those documents but did not file a supplementary statement.

“The respondent’s failure to provide a plausible reason why it disregarded these invoices meant that the appellant had discharged its burden of proof,” the tribunal ruled.

The same issue arose over business expenses. The tribunal found that Nyoro had provided receipts supporting business expenses, but KRA ignored the documents and instead relied on an alternative “best judgment” assessment method.

The tribunal said KRA’s alternative assessment method was lawful only where relevant documents had not been provided or were irrelevant.

“The respondent is, however, not at liberty to invoke and apply its best judgment option arbitrarily and in a manner that suits it,” it said.

In relation to rental income, Nyoro had declared net rental income in its 2017 financial statements and paid tax at 30 per cent, which KRA did not dispute.

The tribunal found that KRA later included the same income in its calculations and subjected it to further tax.

“Naturally, therefore, causing it to pay tax, inclusive of rental income tax that had already been accounted for and paid, would amount to double taxation of the same income,” the tribunal said.

In regard to casual workers, the company said it supplied signed wage records running to more than 755 pages.

The tribunal found that KRA ignored the records without giving a plausible reason and ordered that the casual labour costs be considered.

It found that Nyoro had proved its claim and KRA’s assessment could not stand.

The tribunal, however, did not determine Nyoro’s argument that construction work-in-progress should not attract VAT because the issue had not been raised during the objection process.