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KRA wins Sh672m tax row on land sale to mall, Safaricom

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KRA wins Sh672m tax row on land sale to mall, Safaricom


The Garden City Mall in Nairobi. FILE PHOTO | NMG

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  • The Tax Appeals Court agreed with the tax collector that Ruaraka Diversified Investments did not pay taxes on the earnings of approximately Sh1.4 billion earned in three transactions.

The Kenya Revenue Authority (KRA) earned 672 million shillings from a deal in which a private equity firm Actis sold land where the Garden City Mall is located and separate property to Safaricom Plc #ticker: SCOM in 2015.

The Tax Appeals Court agreed with the tax collector that Ruaraka Diversified Investments, which is associated with the London-based private equity fund, should remit the money to KRA because the company did not pay tax on the profits of approximately Sh1.4 billion obtained in three transactions. after acquiring the land from East African Breweries Ltd (EABL) #ticker: EABL.

The Court noted that the company bought the 34-acre parcel for 1.2 billion shillings, improved it, and sold about 29.5 acres for a total of 2.7 billion shillings, forcing it to pay the five per cent tax on the profits of capital over income.

“The Court observes in this case that the Appellant (Ruaraka) bought the land, subdivided it, improved its infrastructure and was able to sell it at a profit within three years,” stated the Court chaired by Josephine Maangi.

The company had argued that, being a holding company, the proceeds from the sale of the land to Safaricom should have been subject to corporation tax and not capital gains tax (CGT) because they were profits acquired in the course normal negotiation. CGT taxes the transfer of property acquired in January 2015 or before.

Ruaraka Diversified Investments was registered as a real estate and investment company. In 2011, the company purchased a 34-acre parcel of land from EABL for Sh1.2 billion.

Court documents show that the company then subdivided the land and sold the parcels to Safaricom PLC (five acres) for Sh1.15 billion, GC Retail Limited (15.6 acres) for Sh941 million, and GC Residential Limited (8.83 acres) for Sh584. 9 million. .

The company argued that it was a mistake to claim that it was formed to undertake the development and sale of land for profit.

KRA said it was wrong of the company to claim that it was an investment stake, but that it has only been involved in the purchase, development and sale of land for profit, from the start.

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