KRA tax row risks Ukwala buyout deal for Choppies

Corporate News

An Ukwala Supermarket branch on Tom Mboya Street in Nairobi. PHOTO | FILE 

By BRIAN WASUNA, bwasuna@ke.nationmedia.com

In Summary

• KRA accuses Ukwala of failing to pay the colossal amount of money in corporate, PAYE and withholding tax between 2011 and 2014.
• The taxman wants Ukwala to settle the debt before completing the sale of its outlets to Choppies.
• The Competition Authority of Kenya (CAK) last month gave Ukwala and Choppies the green light to complete the transaction.

A Sh946 million tax dispute between the Kenya Revenue Authority (KRA) and Ukwala Supermarkets has put at risk Botswana’s Choppies Enterprises’ planned entry into Kenya’s retail market.

The taxman accuses Ukwala, whose stores Choppies plans to acquire, of failing to pay the colossal amount of money in corporate, PAYE and witholding tax between 2011 and 2014.

The KRA wants Ukwala to settle the debt before completing the sale of its outlets to Choppies.

Choppies has made public its intention to acquire Ukwala for $10 million (Sh1 billion) as it seeks to grab a piece of Kenya’s fast-growing retail market.

The Competition Authority of Kenya (CAK) last month gave Ukwala and Choppies the green light to complete the transaction but the KRA’s demand now looks set to put it on hold.

Retail rush

New York Stock Exchange-listed research firm Nielsen in March ranked Kenya as Africa’s second-biggest formalised retail economy after South Africa, adding impetus to the rush by foreign firms to enter the country.

Ukwala had in September obtained a court order stopping the KRA from further inspecting its books or making any revenue demands until the case is heard and determined.

But the taxman sent another demand notice to Ukwala in November before alerting Choppies of the claim it has against the local retailer.

“The Commissioner of Domestic Taxes and the Commissioner of Income Tax sent another letter to Ukwala’s advocates, and the advocates on record for Choppies Enterprises informing them of Ukwala’s tax liabilities in regards to a separate transaction between Ukwala and Choppies, and by reason of which they have jeopardised the said transaction,” UKwala says in court documents.

Choppies in June announced it had reached a deal to buy the 10 Ukwala stores, half of which are located in Kisumu, three in Nairobi and one in Nakuru.

The retailer, listed on both the Botswana Stock Exchange and Johannesburg Stock Exchange, will become the first foreign supermarket to successfully enter Kenya through an acquisition if the deal with Ukwala is successful.

South Africa’s Massmart resorted to setting up its own store at Garden City Mall in Nairobi after a bid to buy a majority stake in third-placed Naivas Supermarkets collapsed in the wake of sibling rivalry.

Ukwala last month asked its customers to redeem their loyalty points and pick uncollected goods by the end of the year or risk losing them. The notice is part of the retailer’s move to clear with creditors ahead of Choppies’ takeover.

READ: Ukwala asks customers to redeem loyalty points