KRA loses tax dispute with owner of Rosslyn Riviera Mall

The High Court has dismissed an appeal by the Kenya Revenue Authority challenging a decision by the Tax Appeal Tribunal to set aside a tax assessment of Sh18 million, which it had demanded from Thaara Limited, which owns and manages Nairobi’s Rosslyn Riviera Shopping Mall.

It has also dismissed KRA’s claim that the tribunal misinterpreted tax provisions adding that tax liability in Kenya operates under an accrual system where obligations arise only when income or expense is recorded.

“Accordingly, I concur with the tribunal’s finding that the withholding tax is not due yet and with its decision to set aside the appellant’s withholding tax assessment. The upshot is that the appeal is dismissed for want of merit,” Justice Josephine Mong’are said in her December 19, 2024 judgement. 

The dispute arose from a $8 million (Sh1 billion) loan granted to Thaara Limited in 2018 by Vantage Mezzanine III Pan African Sub Fund Partnership. The loan accrued interest at the London Inter-Bank Offer Rate (LIBOR) plus 11.5 per cent, with payment set over seven years. However, a 2020 addendum to the agreement deferred interest payments until 2025 due to the company’s financial difficulties.

KRA argued that this amendment converted the loan into an interest-free facility, making it subject to withholding tax on deemed interest under Section 2 of the Income Tax Act.

In its tax assessment, KRA demanded Sh18,689,679 for the 2019 and 2020 financial years.

Thaara Limited objected, asserting that the deferment did not alter the loan’s nature.

The company argued that withholding tax could only apply upon the payment or accrual of interest, both of which were deferred under the agreement.