The owners of Carrefour supermarket have sued Kenya Revenue Authority over Sh500 million tax demand.
Majid Al Futtaim Hypermarkets Limited objects to the money being demanded.
In 2018, KRA introduced value added tax auto assessment system to detect inconsistencies between purchases and sales invoices declared.
The VAA is hosted by KRA’s online filing platform. For example, if a customer buys an item worth Sh10,000 and is charged VAT at the rate of 14 per cent, which is Sh1,400, it is expected that both the seller and the purchaser shall declare the same as VAT amount.
But if the purchaser or seller declares a different amount of VAT then the VAA system picks up the inconsistency and assesses the difference by way of a debit adjustment.
The owners of the supermarket chain in November 2019 received various VAA assessments for January 2018 to May 2018. The total was Sh523,009,184
Majid Al Futtaim immediately filed its objection to the tax demand and invited KRA to conduct a physical assessment.
Its objection was based on the fact that the implementation of VAA effectively places an obligation on the supermarket to ensure its suppliers declare output VAT and remit the same to KRA, which it said contravenes tax laws.
Secondly, it said the inconsistency between the input tax claimed by KRA and the output tax declared by the supplier does not necessarily imply noncompliance or tax leakage.
And since November 15, 2019, KRA has not rendered a decision on the objection raised by the supermarket owners, while the principal tax assessment amounts continue to reflect and accrue interest.
KRA is now accused of contravening the right to fair administrative action, which in turn has placed a burden on the supermarket owners to account for failures that may be attributed to the suppliers, the court was told.
They want the court to declare the implementation of VAA an illegality because it shifts the burden to supermarket owner to demonstrate that tax has been paid by suppliers.
Also sought is an order to compel KRA to credit the supermarket owner’s iTax ledger with Sh583,795,501 for the input tax claimed.
KRA has yet to respond as it has not been served with suit papers. The case comes up for directions on February 9.