The Kenya Revenue Authority (KRA) has prevailed in a tax dispute with Highlands Drinks Limited, securing a Sh403 million payment from the beverage manufacturer.
The company, known for its carbonated soft drinks, water, and cordials, initially approached the taxman under the Voluntary Tax Disclosure Programme (VTDP) declaring an owed amount of Sh170 million between 2016 and 2019.
However, KRA's investigations revealed a significantly higher discrepancy, estimating the company's tax liabilities at Sh901 million with penalties and interest by December 2021.
This discrepancy sparked the dispute, leading to a series of objections, negotiations, and ultimately, a tribunal ruling.
Company Disputes Calculations and Classification
Highlands Drinks contested the revised figure, arguing that KRA erred in calculating excise duty based on sales volumes instead of factory removals, as stipulated in the Excise Act, 2015.
They also challenged the taxman's methodology for calculating sales and revenue, claiming KRA disregarded their actual sales volume and price data.
Additionally, the company disputed the classification of their cordial as a "drink containing fresh fruit juice," which subjected it to a higher excise duty rate of Sh10 per litre.
KRA Defends Calculations and Procedures
KRA countered these arguments, stating they acted on intelligence suggesting under-declared sales and conducted independent investigations to arrive at the Sh403 million figure.
They clarified that opening and closing stock data was unavailable, and all excise duty paid was considered in income tax calculations.
Addressing discrepancies in production volumes, KRA asserted they used prices provided by the company in their objections.
They also emphasized that VTDP participation doesn't preclude independent investigations.
Regarding the cordial classification, KRA maintained their decision was based on lab-tested samples containing fresh fruit, leading to an additional Sh114 million in excise duty.
They further noted a discrepancy in submitted versus actual sample volume, resulting in a tax shortfall of Sh27 million.
Tribunal Mediates and Issues Ruling
The tribunal acknowledged the disputed figures and discrepancies but ultimately sided with KRA's final calculation of Sh403 million.
While they recognized Highlands Drinks' overpayment of Sh1.9 million in excise duty due to variance in volumes, they also noted the company's undeclared amount of Sh63 million paid under VTDP.
The tribunal rejected the double taxation claim, stating the company had not fully declared and paid excise duty.
Implications and Future Outlook
This ruling highlights the importance of accurate tax reporting and adherence to regulations.
While VTDP offers opportunities for disclosure and reduced penalties, it doesn't absolve companies from potential investigations or revised assessments by tax authorities.
The case serves as a reminder for businesses to meticulously maintain records and transparently engage with KRA to avoid disputes and ensure compliance.