Court orders former Co-op Bank CEO to refund untaxed pay

Mr Erastus Mureithi. The court gave him 30 days to arrange for a refund. FILE 

By GALGALLO FAYO

In Summary

• Mr Erastus Mureithi, who failed to recapture the Ol Kalou MP seat, has been asked to pay the bank Sh11.2 million and interest since 2003.
• The money was paid to KRA on behalf of Mr Mureithi when he served as the bank’s CEO between 1998 and 2001 for unpaid taxes on his monthly benefits and allowances.
• The court gave Mr Mureithi 30 days to arrange for the payment.

A former Co-operative Bank of Kenya managing director has lost his bid to stop the lender from demanding a refund of millions of shillings in unpaid taxes.

Mr Erastus Mureithi, who failed to recapture the Ol Kalou MP seat, has been asked to pay the bank Sh11.2 million and interest since 2003 — pushing the payout to about Sh25 million.

The money was paid to Kenya Revenue Authority (KRA) on behalf of Mr Mureithi when he served as the bank’s CEO between 1998 and 2001 for unpaid taxes on his monthly benefits and allowances.

The former MP contested the demand, saying that CBK’s claims were false since the tax issue was not raised when he was still working with the bank as MD.

Justice Jonathan Havelock Tuesday said the bank had enough grounds to claim the refund, adding that Co-operative Bank proved that the former boss was not deducted the amount remitted to KRA.

“The outcome of all the above is that I enter Judgment for the Plaintiff (in favour of Co-operative Bank) herein in the amount of Sh11,194,097. That sum will carry interest at court rates from the date of filling the suit being March 31, 2003,” said Justice Havelock, adding that Mr Mureithi would bear the legal costs incurred by the bank.

The court gave Mr Mureithi 30 days to arrange for the payment. The former MP said that the amount was colossal, adding that he needed time to settle it.

Mr Gideon Muriuki took over management of the bank from Mr Mureithi in a year that the bank announced a loss of Sh2.3 billion. The bank has since cut the losses to become the fourth largest in the country, announcing a profit of Sh7.7 billion last year from Sh5.3 billion in 2011.

Co-operative Bank said in court that Mr Mureithi was supposed to pay tax from his monthly benefits and allowances, but made the bank pay by virtue of his position as MD.

According to the bank, the tax accrued from benefits of a car valued at Sh2.9 million, Sh10 million insurance premiums with Sh3.2 million tax, and Sh4.5 million school fees and air-tickets for his children amounting to tax worth Sh474, 241.

The court was told that the Sh11.2 million was in taxes imposed by the Commissioner of Income Tax on the former CEO in accordance with the provision of the Income Tax Act chapter 470.

The court heard that having been employed by the bank on June 6, 1989, Mr Mureithi was entitled to a salary of Sh615,120 per annum subject to annual increment.

Co-operative Bank said that the Sh11.2 million was deducted from the bank’s Sh48 million tax refund by KRA. The bank said that the taxman conducted an audit and recommended that staff benefits and allowances be taxed, but Mr Mureithi alleged that the lender did not share the information with him.

Mr Mureithi also said that the contract he signed with the bank entitled him to benefits that were tax free and the bank was supposed to bear taxes attached to his compensation package.