High Court lifts freeze on SportPesa’s bank accounts

Betting company Sportpesa can now access its accounts after a High Court decision to lift an order of preservation over claims of tax evasion amounting to more than Sh14 billion.

The preservation order, which also affected its M-Pesa Paybill and Till numbers, was obtained by the KRA on September 11, 2020. The court had extended the order on October 5 for 60 days to allow the taxman to complete investigations.

KRA, in its application, claimed that Sportpesa, trading as Pevans East Africa Limited, was carrying out its business in fraudulent schemes that have denied the agency collection of colossal sums of tax. The court heard that KRA intends to demand the withheld taxes from the firm.

According to its preliminary profiling and data, Pevans owed Sh14.3 billion - consisting of Sh12.3 billion principal tax and Sh2.4 billion penalties.

However, High Court judge David Majanja discharged KRA's preservation order on Tuesday following an application by Sportpesa arguing that KRA had not furnished it with the application as well as the preservation order as required by Section 43 of the Tax Procedures Act.

The judge found that KRA failed to disclose material facts when it applied to the court for extension of the orders. He suspended the proceeding of case filed by KRA pending the hearing and determination of another dispute involving the two parties or until further orders of the court.

KRA had emphasised that it is a matter of public interest that the court maintains the preservation orders so as to enable it to complete investigations.

But justice Majanja said public interest, as a consideration in the exercise of judicial discretion, does not exist in a vacuum, as it must be grounded in and be consistent with the law.

“This court is enjoined by Article 10 of the Constitution to observe the rule of law and insist at all times that a State Agency such as KRA comply with the letter and spirit of the law,” said the judge.

The evidence showed that the issue of withholding taxes between KRA and Sportpesa has been the subject of correspondence between the parties for some time.

The Judge also noted that there are other pending court cases as well as appeals against decisions of the Tax Tribunal regarding the subject of withholding taxes on winnings paid to punters.

“These are all material facts which KRA ought to have disclosed when it approached the court ex-parte. Further, KRA failed to disclose the fact that it had filed the first application and that Judge Muigai declined to extend the preservation orders,” said Majanja.

Through its chief financial officer, Mwirigi Imungi, the betting company said it only came to know of the order on October 9, 2020 when it was notified by its bankers.

It was only served with the order on October 13 after writing a demand letter to KRA. Mr Imungi told court that failure by KRA to serve the application and the preservation orders was in breach of the orders made on September 11, 2020 which directed KRA to effect service.

He added that the taxman's decision was a violation of section 43(6) of the Tax Procedures Act which requires KRA to inform a taxpayer or person affected by a preservation order as soon as is practicable.

The court heard that that KRA’s conduct amounts to an outright abuse of the due process of the court and forum shopping.