Kapwell Enterprises Limited has successfully overturned a KSh5.9 million tax demand after the High Court upheld a Tax Appeals Tribunal decision finding that its PIN had been fraudulently used by third parties.
The dispute arose after the Kenya Revenue Authority issued additional tax assessments against Kapwell based on customs data indicating that goods worth KSh9.8 million in 2013 and KSh15.7 million in 2014 had been imported using the company’s PIN. The tax authority treated the imports as undeclared sales, despite Kapwell having filed nil returns for the 2015 and 2016 tax periods.
Kapwell disputed the assessment, stating that it had not conducted the transactions and was instead a victim of identity theft. The company maintained that its business was limited to clearing and forwarding services and that its PIN had been misused without authorization by third-party agents.
To support its claim, Kapwell reported the matter to KRA’s enforcement division and filed a police report. It also provided details of the entities it alleged were responsible for the misuse, including Landmark Freight Services and Stemi Investment Ltd.
Despite this, the tax authority proceeded to confirm the full assessment against the company.
The matter was first heard by the Tax Appeals Tribunal, which ruled in favour of Kapwell. The Tribunal found that the company had gone beyond its obligations by reporting the alleged fraud and identifying the parties involved. It held that Kapwell had sufficiently demonstrated that the assessment was excessive and should not stand.
The tax authority appealed the decision to the High Court, arguing that the Tribunal had erred in law by failing to properly evaluate the evidence and by not addressing all issues raised.
However, the High Court dismissed the appeal, affirming that Kapwell had discharged its burden of proof under the Tax Procedures Act by providing credible evidence of identity theft.
The court further found that the tax authority had failed in its statutory duty to investigate the claims. It noted that under the law, KRA is required to make all necessary inquiries in tax matters but did not take meaningful steps to examine the entities identified by Kapwell.
The court also highlighted that a taxpayer’s PIN can only be used with explicit authorization and solely for that taxpayer’s affairs, adding that no such authorization had been demonstrated in this case.
In its ruling, the court rejected the argument that Kapwell had admitted liability, stating that any engagement with the alleged perpetrators did not amount to a legal concession.
The decision effectively clears Kapwell of any tax liability arising from the disputed transactions and reinforces the principle that tax assessments must be grounded in verified facts and proper investigations.
The case underscores the legal protections available to taxpayers in instances of fraud and the obligation on tax authorities to thoroughly investigate before issuing enforcement actions.
