KenGen’s unpaid tax tied to its 2016 dividend payment has climbed to Sh3.3 billion after penalties and interest were added to the original assessment by the Kenya Revenue Authority.
The power producer paid the Treasury Sh5.7 billion in dividends in 2016, triggering a compensating tax because the payout came from profits that had not been taxed at the standard rate. The levy is charged at 42.8 per cent and is intended to discourage companies from passing untaxed gains to shareholders.
According to the company’s latest annual report, the compensating tax came to Sh2.4 billion. KenGen paid Sh100 million during the year ended June, leaving a balance of Sh2.3 billion on which penalty and interest had reached Sh963.3 million by June 30, 2018.
The utility said it had not made any provision for the penalty and interest in its financial statements. It argued that it was seeking relief from the National Treasury and Planning, including abandonment of the principal tax, and said its directors expected a favourable outcome.
“No provision has been made with regards to penalty and interest estimated to be Sh963.3 million as at June 30, 2018,” the company says in its annual report.
“The company has applied for abandonment of principal, penalty and interest from the National Treasury and Planning. The directors are confident of a favourable outcome and therefore are of the opinion no provision is required with regards to interest and penalty.”
The Auditor-General’s office said it had reviewed KenGen’s correspondence with KRA on the matter and noted that the eventual resolution could have an uncertain effect on the company’s financial statements.
KenGen had also benefited from billions of shillings in investment deductions during the construction of new power plants, which reduced its effective tax rate below the normal 30 per cent.
