Court quashes KRA’s withdrawal of Mombasa firms tax certificates

Four companies associated with billionaire businessman Mohamed Jaffer got a reprieve after a decision by Kenya Revenue Authority (KRA) to withdraw their tax compliance certificates was quashed.

The High Court in Mombasa quashed the entire decision of the Commissioner of Tax revoking and withdrawing the tax compliance certificates in respect of Grain Bulk Handlers Ltd, One Gas Ltd, One Petroleum Ltd and African Gas and Oil Company Ltd.

Justice Eric Ogola further directed the commissioner of tax to reinstate the tax compliance certificates to One Gas Ltd and Grain Bulk Handlers Ltd, and deem them as valid, legitimate and legal from the date of withdrawal.

The court further issued an order prohibiting KRA and its agents from further withdrawal of the tax compliance certificates, which are lawful and valid, without due process.

It noted that even though the tax compliance certificates for African Gas and Oil Company Ltd and One Petroleum Ltd have expired, proceedings leading to the grant of orders issued in December started when they were valid, hence KRA’s action of withdrawing them remains illegal and quashed.

Justice Ogola ruled that prior to the communication withdrawing the tax compliance certificates, KRA was required by law to issue the companies with a demand note or notice, so as to give them an opportunity to be heard before withdrawal.

“That failure clearly affords the applicants a hearing before this court which has the jurisdiction to safeguard their rights to a fair hearing and right to fair administrative action,” said Justice Ogola.

The court noted that the four companies are tax payers who had applied for the tax compliance certificates from KRA, which were issued to them with expectations that they would enjoy the benefits that accompany them.

“Further, there was an expectation that should the tax compliance certificates become wanting in any way so as to affect their continued use or purpose, such resultant status would be notified to the applicants before any drastic action, such as withdrawal would be taken,” said Justice Ogola.

The judge ruled that KRA violated the companies’ legitimate expectations and that administrative action cannot be said to be procedurally fair when a decision is arrived at based on opinion formed as a result of consideration of only one party in a controverted matter involving two parties.

The companies had filed their applications separately but were jointly heard because they raised similar issues.

According to the companies, KRA’s decision to revoke their tax compliance certificates was taken in arbitrary, capricious and illogical manner.

They argued that the withdrawal of the tax compliance certificates was not preceded by any request for information, or documents, in accordance with the Section 59 of the Tax Procedure Act.

The companies told the court that their tax compliance certificates were just withdrawn without any demand, which (situation) amounted to violation of any taxpayer’s legitimate expectation that a certificate once issued remains for the duration of the tax period.

“The respondent’s action jeopardizes the applicants’ business as they cannot apply for trade licenses, permit and certificates for the next calendar year without evidence of a valid tax compliance certificate,” part of the suit documents stated.

On its part, KRA argued that the Tax Procedures Act gave it powers of enforcement and that the tax compliance certificate bears a caveat to the extent that it (KRA) has the right to withdraw the certificate, if there is reason.

The taxman further told the court that it is entitled to carry out investigations and that they (investigations) are still ongoing.

KRA argued that it withdrew the tax compliance certificates held by the companies in accordance with the Tax Procedures Act.

The taxman also said that it reserved the right to withdraw the certificates if new evidence alters tax compliance status of a holder.