BY SAM ALFAN.
Former President Uhuru Kenyatta family owned NCBA bank has obtained temporary orders stopping Kenya Revenue Authority from recovering taxes arising from merger of its constituents NIC and CBA.
Justice Mugure Thande issued a conservatory order suspending execution, implementation of a decision of the CS Treasury Njuguna Ndung’u reversing an exemption granted to the bank in June 2019.
The court issued the order despite another matter filed by Senator Okiyah Omtatah pending in court where NCBA Bank has never responded until now.
“I am satisfied that the application has met the test for the grant of conservatory orders at this ex-parte stage,” the judge said.
The lender argues that it applied for exemption from Capital Gains Tax (“CGT”) arising in respect of certain transactions implemented as part of the merger between NIC and CBA (“Merger”) under Paragraph 13(1) of the Eighth Schedule to the Income Tax Act (“the ITA”).
Upon being satisfied that NIC and CBA had met the conditions for grant of exemption, the Treasury granted an approval for exemption from payment of CGT in respect of the transfer of the CBA shares from the CBA shareholders to NIC Bank Kenya Plc and the transfer of assets and liabilities from NIC Bank to CBA as part of the hive-down and business amalgamation implemented as part of the merger.
The lender said pursuant to the exemption, the parties to these transactions implemented as part of the Merger were not liable to pay CGT. The parties, the lender said, relied on the said representation by the Treasury and concluded the merger.
However, by a letter on March 24, 2023, the Treasury CS notified NCBA of the revocation of the exemption and directed Kenya Revenue Authority (KRA) to collect the taxes from the bank.
“The impugned decision to revoke the Exemption was made in excess of the Treasury’ jurisdiction and powers and Treasury does not have the power to reopen, revoke or reconsider an exemption once granted,” the bank submitted.
The lender claims that Treasury erred in acting on the basis of a purported Board resolution by KRA directing the Treasury to reconsider the said Exemption.
“In exercising the discretion granted to him under the ITA, the Treasury acts independently and not under the direction of any other authority,” the bank said.
NCBA argues that the purported Board resolution by KRA was in any event improper and in excess of the mandate of KRA and the taxman has no powers to direct or require the CS to revoke an exemption.
“In the circumstances, the 2nd Respondent acted in error of the law and in abuse of his discretion by relying on the purported resolution of the Board of Directors of the KRA in arriving at the revocation decision,” the Bank added.
The lender Treasury’s action amounts to abuse of power and authority and Treasury’s conduct contravened its legitimate expectation.
“Neither given prior notice of the intended revocation nor an opportunity to be heard before the impugned decision was made, not provided with reasons for the re-consideration of the Exemption, not provided with the evidence and materials relied on in making the decision to revoke the Exemption,” adds the Bank.
NCBA argues that by threatening to collect from the Bank CGT when the Bank was not liable, the Treasury has threatened the Petitioner’s right to property guaranteed under Article 40 of the Constitution as well as under the principles of taxation under Article 210 (1) of the Constitution. 8 of 73 p) The 2nd Respondent’s action contravenes the national values and principles of the rule of law enshrined in Article 10 as read together with Articles 20 and 21 of the Constitution.
