KRA wins share of Westgate’s payout

The Kenya Revenue Authority (KRA) has won a court battle for a share of the Sh4.4 billion compensation that the Westgate Shopping Mall received from Kenindia Insurance following a terrorist attack in 2013.

High Court judge John Mativo quashed an application by the mall’s owner, Sony Holdings Limited, to stop KRA from demanding Sh221 million in taxes from the terror attack compensation and a further Sh159 million in tax arrears for 2016.

Westgate owners had argued that the taxman had unfairly classified the compensation as revenue instead of capital to justify the tax demand.

However, KRA maintained that Sh600 million of the compensation should have been regarded as income and was therefore liable for payment of 30 percent corporation tax as Westgate had informed the court that it was also set to enjoy duty exemptions.

“The applicant has not demonstrated that the taxes are not due. On the contrary, the material shows that the taxes were due, hence the request for exemption,” Justice Mativo said in a judgment published on Tuesday. “In view of my findings and conclusions as here above discussed, the conclusion becomes irresistible that the applicant’s application must fail”.

Kenindia Assurance Company had paid Sony Holdings Sh3.1 billion as compensation for damage to the mall and a further Sh1.2 billion as compensation for loss of rent during the period the shopping complex in Nairobi’s Westlands area remained closed. KRA was seeking a share of the Sh1.2 billion after deduction of operation expenses.

The September 2013 attack by the Somalia terrorist group Al-Shabaab left 67 people dead and many others injured after gunmen stormed into the mall and opened fire on shoppers.

Since its reopening, major foreign brands, including Subway, KFC and Converse, have opened outlets there, as has Shoprite, which took over the space previously occupied by Nakumatt Supermarket.

In the court case, KRA had said that Sony Holdings had classified the Sh600,000 as capital income instead of revenue income without supporting documents. This was found to be in breach of Section 4(c) of the Income Tax Act, which provides that “a sum received under an insurance against loss of profits, received by way of damages or compensation for loss of profits, shall be deemed to be gains or profits of the year of income in which it is received.”

Sony Holdings had faulted KRA’s decision to classify the Sh600 million as revenue, arguing that it suffered a net loss of nearly Sh1 billion after reconstructing the mall at Sh4.04 billion against a compensation of Sh3.1 billion.

The court says Sony Holdings failed to prove among other allegations that KRA had acted in bad faith and that the tax claim was illogical, unreasonable and irrational. “I find and hold that the applicant has failed to present grounds to demonstrate that the impugned conduct of decision is legally frail,” said Justice Mativo.