The Kenya Revenue Authority (KRA) spied on bank accounts operated by former Nairobi governor Evans Kidero on a mission that saw it net Sh427 million as unpaid tax for a period of five years.
The authority also snooped on the former governor’s rich list of high-end properties, gleaning information about the rental income that was flowing into Mr Kidero’s accounts.
His land and buildings are estimated to be worth at least Sh9 billion, according to the anti-graft agency, making him one of Kenya’s wealthiest people.
The KRA’s espionage was revealed in court documents that on Tuesday prompted the High Court to order Mr Kidero to pay the taxman Sh427 million.
The revelation looks set to raise questions about the confidentiality of banking transactions.
While bankers deny that they have been sharing clients’ data with the KRA in the absence of court orders, the taxman has previously admitted to having received financial account records from them in its bid to unearth tax cheats.
“In assessing the appellant for tax, the respondent (KRA) used an indirect method of assessment wherein the respondent looked at monies charged on the appellant’s bank account, an estimated value of property that includes over 15 houses for rent, and monies charged on loan taken to purchase a property,” court documents say.
The KRA says in court documents that it did an assessment on Mr Kidero’s accounts after tracking his financial dealings and arrived at unpaid tax of Sh680.9 million between January 2011 and December 2015, inclusive of penalties and interest.
The amount was reviewed to Sh427 million after the former governor contested the figure.
Mr Kidero defended the millions of shillings that flowed through his account, saying it was part of contributions received from well-wishers and friends for his campaigns ahead of the 2013 General Election.
The court, however, faulted him for failing to separate his personal account from the campaign kitty.
Justice David Majanja said a taxpayer must demonstrate that the money received for political campaigns is declared and used as such.
He said any money not declared as political campaign funds and used for political campaign purposes, will ultimately be considered income and therefore taxable.
“Consequently, the tribunal erred in imposing on the commissioner the burden of disproving the respondent’s contention that the Sh423,000,000.00 was election campaign contributions when he had not provided sufficient evidence to surmount his obligation to establish the source of income,” Justice David Majanja said.
The tribunal had ruled in favour of Mr Kidero, prompting the KRA to file an appeal at the High Court, which backed the taxman.
The KRA has hinged its bank accounts espionage on the Tax Procedures Act (TPA), which compels third parties to share information with the taxman.
This has seen the KRA issue agency notices, which have led to the freezing of bank accounts and the order to remit tax directly to the authority from clients’ accounts.
Lawyers and accountants reckon that the taxman has stepped up its surveillance on bank accounts as it seeks to match the flow of cash against tax remittances.
Bank clients have always believed that their account details are secret and beyond the prying eyes of the taxman.
The KRA did not disclose Mr kidero’s incomes and properties that led to the Sh427 million tax bill, but court documents filed in a separate suit by the Ethics and Anti-Corruption Commission (EACC) have revealed the former governor’s property portfolio.
He has a vast real estate business which boasts tenants such as the governments of the United States, the United Kingdom, Sweden, and expatriates, according to the EACC.
The former Nairobi governor mostly trades through five companies — Gem Investments, Gem Apartments, Gem Suites, Orro Limited and Argenti Limited — but also personally owns hundreds of acres of land worth billions of shillings.
Mr Kidero had stated that 15 of the 75 properties the EACC has linked him to are owned by other individuals.
While he admits owning 60 of the properties the EACC listed as his, the former governor argues that the property is worth Sh563.9 million and not Sh9 billion as the agency claims.
The EACC believes that Mr Kidero colluded to fraudulently transfer funds to personal accounts during his tenures as Mumias Sugar Company boss and Nairobi governor.
He had defended his properties, saying he was a man of decent means and had accumulated his wealth over the years since his first employment in 1983.
In the tax dispute, the KRA said it was Mr Kidero’s duty to provide information as per TPA, to clarify sources of income and provide the necessary documentation, which he failed to do.
The former Nairobi county boss said part of the money (Sh74 million) targeted was a loan from one of his companies- Gem Investments for the purchase of a property owned by Vista Investments.
He claimed that he took a shareholder loan from Gem Investments, which was transferred to a law firm but he later purchased shares in Vista from a loan borrowed by Gem Investments from a bank.
The KRA, on its part, said the money was unspecified income and subject to tax since there was no explanation and evidence, to support Mr Kidero’s claims.
Justice Majanja agreed with the KRA, saying under section 54A of the Income Tax Act (ITA), the taxpayer has a duty to maintain records to support its transactions.
“I also find that that the Respondent failed to discharge the burden of showing that he received the sum of Sh74,000,000.00 as a loan to first purchase a property and then purchase shares as the same is without supporting evidence,” the judge said.
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