In a significant development, Naivas Kenya Ltd (NKL) is set to pay the Kenya Revenue Authority (KRA) a sum of Sh1.8 billion in corporation tax. This verdict comes after the Tax Appeals Tribunal (TAT) ruled against Naivas’ appeal, which challenged the obligation to pay corporation tax arising from the sale of its 30% minority stake.
The timeline of events leading up to this decision began when Naivas Kenya Ltd filed an appeal with the TAT on June 10, 2022. The appeal was in response to a tax assessment by the Kenya Revenue Authority, which subjected the transaction involving the sale of Naivas International Limited (NIL) to a resident corporation tax rate of 30%.
Ultimately, on August 4, 2023, the Tax Appeals Tribunal rendered its decision, favoring KRA’s assessment and affirming the unpaid corporation tax amount of Sh1.8 billion. This marked the end of Naivas’ attempt to contest the tax obligation through the legal process.
The complexity of the case emerged from a convoluted arrangement involving holding companies and subsidiaries, which KRA meticulously unraveled to reveal an attempt to evade corporation tax payment in Kenya.
The crux of the assessment revolved around the sale that took place in 2020—a 30% minority stake in Naivas International Limited (Mauritius) to Amethis Retail for Sh5.2 billion. This transaction was carried out by Gakiwawa Family Investments Limited (GFI). Notably, Naivas Kenya Ltd (NKL) had been appointed by the Kenya Revenue Authority as the tax representative for Gakiwawa Family Investments Ltd.
At the core of the dispute was whether NKL indeed had a legitimate connection with GFI, and whether it was obligated to act as GFI’s tax representative. The Tribunal’s ruling determined that despite GFI’s incorporation in Mauritius, the control and management of the holding company, which owned Naivas Supermarkets, were conducted by Kenyan directors on Kenyan soil.
The Tribunal’s decision emphasized the significance of the company’s operational control and management being exercised in Kenya. This pivotal point led the Tribunal to conclude that both Gakiwawa Family Investments (GFI) and Naivas International Limited were effectively tax residents of Kenya.
Moreover, the Tribunal clarified that to qualify as a non-resident company’s tax representative, the entity must possess the capacity to oversee the non-resident entity’s affairs within Kenya. In this context, Naivas’ control over GFI’s operations and its management by Kenyan individuals solidified the connection.
As a result of this ruling, Naivas Kenya Limited is now liable to fulfill the corporation tax assessment of Sh1.8 billion, including associated penalties and interests. The Tribunal’s verdict brings closure to a legal process that delved into the intricacies of tax obligations and corporate structures, underscoring the importance of transparent and accountable financial practices.
