CASE STUDY: KENYA REVENUE AUTHORITY VS SALSA GLOBAL INVESTMENT CO. LTD & 3 OTHERS, MISC APP NO. 179 OF 2024
The High Court in this case ordered the reinstatement of the 1st Respondent in the Companies Register on account of pending tax liability.
The 1st Respondent applied to be struck out from the Companies Register, which application was allowed and effected through a Gazette Notice No. 211 dated 14th October 2022.
KRA moved the court for reinstatement of the 1st Respondent because it had failed to issue to KRA the Notice of deregistration as required by the Companies Act, 2015.
KRA also urged that the 1st Respondent had failed to apply for cancellation of its PIN under the Tax Procedures Act and deregistration of its VAT obligation under the Value Added Tax Act. Additionally, it submitted that the failure to apply for deregistration and cancellation, other than being an offence punishable by penalties, was also a demonstration of the Respondents’ intention to conceal and evade their tax liability.
At the time of being struck off, the 1ST Respondent owed unpaid taxes amounting to Ksh 38, 041, 137. 26 made up of unpaid income tax Ksh 10,341,577.05 and Value Added Tax (VAT) amounting to Ksh 27,699,560.22.
Requirement to serve of application for striking off from the Companies Register to KRA
Under Section 900 of the Companies Act, 2015, a person making an application to strike off a company from the register is mandated to serve the application within 7 days to creditors of the company, among others.
Under Section 32 of the Tax Procedures Act, a tax payable by any person under a tax law shall be a debt due to the government and payable to the Commissioner.
Thus, by Section 32 of the Tax Procedures Act, the government, through KRA, is deemed a creditor for purposes of striking off a company and should therefore be served with the application per Section 900.
A person who fails to serve the application to conceal the making of the application is liable, on conviction, to a fine not exceeding Ksh 500,000 or imprisonment for a term not exceeding 2 years, or to both.
Consequences for failure to apply for the cancellation of KRA PIN.
In the case of VAT, Section 36 of the Value Added Tax Act mandates a registered person who ceases to make taxable supplies to apply for cancellation of their registration within 30 days of the date they stop making the taxable supplies.
Additionally, a person making taxable supplies whose value does not exceed the registration threshold of Ksh 5,000,000 may apply for cancellation of his/her registration.
Failure to apply for cancellation is an offence under Section 37 of the VAT Act, punishable by a fine not exceeding Ksh 200,000 or imprisonment for a term not exceeding 2 years, or both.
Further, Section 10 of the Tax Procedures Act mandates a person who ceases to be required to be registered for purposes of a tax law to apply to the Commissioner for deregistration under the tax law.
Under Section 81 (2) of the Tax Procedures Act, a person who fails to apply for deregistration or cancellation is liable to a penalty of Ksh 100,000 every month from the person was first required to apply for cancellation to the month preceding when the application is made.
However, the provisions of Section 81(2) are only applicable where the specific tax law does not impose an administrative penalty for failure to apply for deregistration or cancellation.
Note: This publication does not constitute a legal opinion and is published for information purposes only. Contact us by email: info@okangaomondiadvocates.com for consultations and legal representation.
