National Bank of Kenya has been ordered to pay Sh510million to Kenya Revenue Authority after Tax Appeal Tribunal upheld its decision against the said bank.
The Tribunal led by Patrick Lutta ruled that the Bank is liable to pay taxes amounting to Sh 510,951,944.
“The Tribunal finds that the taxes assessed and demanded by the Respondent (KRA) via its Objection Decision of 31st August 2020, to the extent that they are a correction of the “multiple claims”, are due and payable,” ruled the tribunal.
The taxes arise out of disallowed credits wrongfully claimed by the bank under the Income Tax Act.
National Bank wanted KRA to utilize the tax overpayment it had to set off its tax liabilities.
According to the Bank, KRA had erred in law and in fact by disallowing tax credits of Sh 510,951,944.00 claimed on the iTax Income Tax Company Self-Assessment Return on the basis that it was captured under the wrong line of return.
“The capturing of the prior year tax overpayments as “credits under special arrangements” was necessitated by the fact that unlike the manual return, the iTax return did not provide a field to declare such credits,” argued the bank.
According to the Bank, in 2017, it was issued with a set of statements of account for the legacy balances for the years of income 2007 to 2014 showing cumulative tax payable of Sh 3,155,314,320 by KRA.
It responded to the statements of account fully reconciling the same with its tax records that showed that for the year 2014, there was a tax overpayment of Sh431,696,127.
At the time of filing the 2015 Self- Assessment Returns (SAR), it captured the tax overpayment brought forward from the year 2014 of Sh431,606,127.00 under “credits under special arrangements” and did the same for the year 2016. The final position per 2016 return was a tax overpayment of Sh504,520,521.00.
It reached out to KRA on 29th June 2020 when attempting to file the 2019 tax return after being unable to include the 2018 tax overpayment in the return since the over payment had been posted in the refund account as opposed to the advance section.
KRA acknowledged the challenge and advised the Bank to proceed with filing of the returns, and noted that any penalties and interest including any principal arising from the challenge would be considered upon validation of the tax overpayment.
However KRA in response claimed none of the amounts claimed by the bank were in relation to foreign tax credits nor were the claimed credits in any way related to credits under special arrangements.
KRA claimed that the Bank did not provide any evidence to prove that a special arrangement existed at the time of claiming the credits under Section 42 of ITA.
The Tribunal in upholding the KRA’s decision noted that the credits claimed by the bank under the Income Tax Act were clearly incorrect as the claim was not what is envisaged by the law.
According to the tribunal, National Bank of Kenya Limited was not justified in utilizing alleged tax overpayment to settle off its tax liabilities as the relevant law only authorizes the Authority to apply a tax over payment in payment of taxes owed by a taxpayer.
Tax Tribunal held that the bank ought to have applied for a refund under the Tax Procedures Act, which provides for a procedure for makings claims of refund of overpaid taxes.