Pius Ngugi nut company loses tax demand case

Businessman Pius Ngugi (right) leaves a Kiambu court on February 21, 2018 after a past hearing. FILE PHOTO | NMG The Kenya Revenue Authority (KRA) has been given the green light to demand Sh33.5 million from Kenya Nut Company, arising from withholding tax based on the commissions paid overseas selling and marketing agents.

Three judges of the Court of Appeal overturned a decision of the Justice George Odunga, issued six years ago, quashing the KRA’s demand for withholding tax amounting to Sh33,534,855 between 2002 and 2005.

But the company associated with billionaire Pius Ngugi faulted KRA’s assessment saying once foreign entities have deducted commissions and expenses at source, they had no platform or means of collecting withholding tax from them.

The company, which is engaged in the business of growing, purchasing and processing of macadamia and cashew nuts for both domestic and overseas markets, added that it was impossible to withhold tax since it had no control over overseas entities.

Justice Odunga agreed with the firm in 2014 and quashed the demand, forcing the taxman to appeal against the decision.

The company maintained the said commissions and expenses deducted by overseas trading partners were imposed on them for a specific amount and period, to enable the company access markets in Europe and the US.

And once a contract with customers was made by the overseas partners, no further commissions or expenses would be paid to that customer in subsequent contracts.

The KRA on its part argued it was the duty of the company to ensure that withholding tax was deducted and remitted, irrespective of whether the proceeds of the sale were remitted to it or its agent. The taxman further argued in the circumstances of the dispute, Kenya Nut’s main intention was to evade tax.

In the judgment, justices William Ouko, Daniel Musinga and Sankale ole Kantai said the company was under an obligation to identify and satisfy KRA what portions were expenses and which ones were commissions.

“To enter into a contract with foreign agents, which allowed foreigners to deduct and retain at source their commissions without putting in place mechanisms of taking into account withholding tax was not only reckless on the part of the respondent but was also intended to deny the country revenue,” the judges said.

They added the argument the amount retained by the agents comprised commissions and expenses was, in their view immaterial.

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