Collapsed Uchumi Supermarkets Ltd (UCL) has failed to convince the High Court to quash a tax demand of Sh64.3 million arising from the sale of its flagship Ngong Hyper outlet, which went for Sh1.4 billion eight years ago.
Justice Nixon Sifuna dismissed an appeal by the retailer seeking to quash an assessment of the Kenya Revenue Authority (KRA) on account of capital gains tax.
Uchumi sold some of its outlets including the Thika Road branch as part of a debt settlement plan and a turnaround strategy that bore no fruit.
The court was informed by Uchumi that there was no gain in the sale as the money was used to pay salaries, suppliers, rent, and other utilities.
Justice Sifuna said fact that the former retail giant applied to the Treasury CS for exemption was an admission that the tax was due. The judge added although the company made the application, there has never been such certification, years later.
“I hold that in the absence of such certification, as is the case here, the appellant is neither released nor excused from paying the said capital gains tax,” said the judge.
The retailer was eventually placed under receivership with a huge debt to creditors, and suppliers among others.
The court was informed that the sale was part of the plans to resuscitate the retailer. The company embarked on what was termed as credit management, equity, and restructuring plans, as it sold some of its assets to recapitalise it.
The court heard that the Ngong Hyper branch was sold for Sh1.4 billion and KRA demanded a capital gains tax of Sh70 million as the principal tax and a further Sh16.1 million for penalties and interests.
After objecting to the taxman’s assessment, the amount was reduced in 2017 to Sh64.3 million after the KRA removed some penalties and interests.
Not satisfied, the retailer moved to the Tax Appeals tribunal but the same was dismissed, forcing it to move to the High Court.
Before Justice Sifuna, UCL maintained that the sale was for recapilisation and restructuring of the company’s debt-to-equity ratio and for that reason, the company did not make any gain or profit from the sale.
The court heard that Uchumi applied to the CS Treasury for exemption but was still pending by the time the case moved to court.
Further, the court was informed that the assessment was inflated and excessive.
The KRA argued that by seeking an exemption, it was an admission that tax was due and owing.
From the sale, UCL said Sh1.2 billion was paid to KCB Bank, a creditor and the balance of Sh200 million was used to pay salaries, suppliers, rent, and other utilities.
The collapsed supermarket said it had a large workforce and the exemption has never been rejected or accepted.
In the judgement, Prof Sifuna said that the Treasury must certify that the application for exemption is being done in the public interest.
