Momentum Ice vodka firm CEO in Sh163.8m tax battle with KRA

The new drink was cheaper but similar in name and appearance to the already popular Smirnoff Ice Double Black with Guarana, which helped to boost its brand recognition.

Diageo North America Inc and UDV (Kenya) would sue Platinum Distillers over the brand, and an out-of-court settlement saw the latter change the design of its packaging and drop the Guarana tag.

Diageo may have won the trademark battle, but the market stint was enough to thrust Momentum Ice into popularity within a short time.

Barely one month after settling the Guarana battle out of court, Platinum Distillers launched another drink, Ferrari Ice, and continued on its path to success.

It would also become the first of many other controversies that have now left Platinum Distillers and its chief executive fighting off tax claims.

For the next five years, Platinum Distillers would smile all the way to the bank, as cash flowed in hundreds of millions.

Despite the company’s overnight success, Ms Kinyua would file nil tax returns with the Kenya Revenue Authority (KRA), at least for the first four years of Platinum Distillers' growth in the alcohol manufacturing sector.

Filing nil returns to KRA

This implied that she was not drawing a salary from Platinum Distillers despite being its highest-ranking employee.

But Caesar was not taking the tax returns at face value.

On April 18, 2019 a letter from the KRA arrived on Ms Kinyua’s desk. The taxman was planning an audit of her bank accounts for the years 2014 to 2017.

In the letter, the KRA communicated that Ms Kinyua had been filing nil returns despite receiving millions in her accounts at KCB Bank.

By the time the letter was being sent to Ms Kinyua, KRA had established that the Platinum Distillers CEO’s bank accounts had received more than Sh425 million between 2014 and 2017.

The money had been deposited in three bank accounts, one of which Ms Kinyua jointly owned with an individual identified as Onesmus Muturi Mburu. The court and tribunal papers do not specify the relationship between Ms Kinyua and Mr Mburu.

The KRA initially demanded taxes, interest and penalties totaling Sh249.5 million from Ms Kinyua.

But Ms Kinyua and Platinum Distillers objected to the demand.

The two claimed that the money deemed to be income was a series of loans from various sources, including Platinum Distillers.

Exposed to double taxation

They also insisted that the KRA was being punitive in claiming corporate tax from Ms Kinyua’s personal bank accounts that should have attracted individual income tax at most.

Ms Kinyua added that money she received from Platinum Distillers had already been subjected to corporate tax, hence she was being exposed to double taxation.

Ms Kinyua insisted that the CEO’s personal accounts also doubled up as collection accounts for Platinum Distillers, and she provided a Board of Directors resolution to that effect.

Among the deposits Ms Kinyua had received was a Sh58 million transaction in the 2014-2015 financial year.

Ms Kinyua said it was unfair to treat the deposit as income because the money had been sent from an individual she identified as Willy Mwangi, on whose behalf she was purchasing a house in Kikuyu for the full amount.

The taxman considered the objections and struck some items off the demand list, before lowering its claim from Ms Kinyua to Sh163.8 million.

Among the considerations taken by the taxman was the fact that Ms Kinyua and Mr Mburu each had 50 per cent responsibility for their joint bank account. This saw the taxman drop Sh11.9 million from the claim on the joint account.

As the KRA claimed taxes on Ms Kinyua’s half of the account with Mr Mburu, it means that the joint account had received a total of Sh23.8 million between 2014 and 2017.

It also means that Ms Kinyua’s other two accounts received Sh401 million between 2014 and 2017.

Sh163.8 owed million in taxes

Ms Kinyua still believed that the KRA was being unreasonable, and she challenged the demand at the Tax Appeals Tribunal.

The CEO claimed that the KRA still irregularly treated loans as income, ignored some transactions involving money received being transferred out of her account, and failed to consider Platinum Distillers Board resolutions that designated Ms Kinyua’s personal accounts as the company’s collection points.

The KRA in its response said it had made all reasonable considerations when calculating Ms Kinyua’s dues, and held that the CEO owes Sh163.8 million in taxes, interest and penalties.

On June 18, 2021 the Tax Appeals Tribunal dismissed Ms Kinyua’s case.

The tribunal held that Ms Kinyua did not produce any evidence to show that some of the money she received in personal accounts was held on behalf of Platinum Distillers.

The tribunal added that Ms Kinyua did not file loan agreements or any paperwork to prove that some of the funds she received were loans from Platinum Distillers.

KRA applied the corporate tax rates on the Sh413 million Ms Kinyua received in the three accounts, arguing that there was no evidence to suggest that the money was not business income.

“Based on the preceding analysis, the Tribunal finds that Ms Kinyua failed to demonstrate that indeed the funds received in her accounts were payments to Platinum Distillers. Having failed to do so, the only cogent conclusion would be that the funds were Ms Kinyua’s income in which case, Ms Kinyua was obligated to pay taxes,” the tribunal ruled.

“…In the circumstances and there being no evidence to the contrary, the Tribunal is persuaded that the deposits in Ms Kinyua’s accounts could only qualify as business income and not employment income. Thus, the graduated Pay As You Earn rate and the relief thereon cannot apply at all,” the tribunal added.

Shut down over tax evasion

After the tribunal decision, the KRA sent agency notices to Ms Kinyua’s bankers, seeking to recover the Sh163.8 million.

The Platinum Distillers CEO filed a High Court application challenging the decision and agency notices.

Justice David Majanja has now issued orders stopping the taxman from attaching Ms Kinyua’s accounts until he determines the case she has filed.

But Ms Kinyua must submit a bank guarantee of Sh10 million before the end of August as a condition to keep the stop orders in operation. If She fails to provide the bank guarantee within the time ordered, the taxman will be free to recover the full Sh163.8 million from Ms Kinyua.

Platinum Distillers has also since 2019 been fighting the KRA, which raided the company’s Ruiru factory and shut it down over tax evasion.

The KRA and Directorate of Criminal Investigations (DCI) accused the brewer of evading Sh14 million in taxes, which arose from ethanol whose levies were allegedly not paid for.

Platinum Distillers, while suing the KRA and DCI in 2019, claimed that the ethanol was owned by another company – Multiplan Packaging Company.

Platinum Distillers insisted that the raid arose from a case of mistaken identity, as it shared a warehouse with Multiplan Packaging which owns the ethanol that was seized during the raid.

The High Court declined to issue orders to allow the brewer to reopen in the course of the case.
Platinum Distillers is also among 12 brewers the National Assembly probed last year over tax evasion.

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