Airtel
Kenya has lost a 16-year battle with the taxman over a disputed Sh531
million revenue claim from the telco’s purchase of an operation licence
in 2000.
High Court judge David Tuiyott ruled that
Airtel’s $55 million (Sh5.5 billion) purchase of an operation licensce
should not have been classified as revenue expenditure.
Airtel
had deducted the payment of its licence purchase as revenue expenditure
— which in effect lowered its tax burden, arguing that this gave them
reprieve from the Sh531 million being claimed by the Kenya Revenue
Authority (KRA).
The KRA reassessed Airtel’s books and
held that the purchase should be treated as capital expenditure,
triggering the now protracted Sh531 million tax arrears demand.
Airtel,
which was operating as KenCell at the time the transaction happened,
successfully challenged KRA’s claim before a local tax committee,
forcing the taxman to move to court seeking to have its demand
maintained.
“I allow the appeal and set aside the
decision of the local committee for Nairobi South made on March 10,
2005,” Justice Tuiyott ruled, adding that Kenya, like many other
countries, lacks clear tax law on telecommunication licences.
“This
court has not found any plausible reason that shakes the proposition
that, on the fundamental test of purpose, the initial expenditure on the
licence fee created a new asset or opened new fields of business for
KenCell in Kenya.”
The taxman says Airtel owes Sh261
million for the year 2000 and Sh270 million for 2001, as the telco
deducted them from its taxable income for those two years.
Airtel
argued that the taxman’s demand would have been legitimate if it had
made a one-off payment, which was not the case with its purchase of a
Global System for Mobile communication (GSM) licence.
However,
Justice Tuiyott held that despite making payments in separate years,
the licence purchase can be treated as a one-off payment.
“The
initial payment for the licence was a one-off payment because it was
made once for 15 years. Unlike a recurrent payment, a lump sum payment
tends to suggest that the expenditure is capital in nature,” he added.
The
judgment comes as the telco fights to have its licence renewed for a
further 10 years. Airtel says the Sh2.1 billion that the Communications
Authority of Kenya (CA) is demanding for a 10-year renewal is too high
for a small operator like itself.
Airtel is currently operating on a licence acquired along with Essar’s (yuMobile) assets in a deal concluded early this year.
Airtel
and rival Safaricom last year acquired Essar Telcom in a joint buyout
valued at Sh12.3 billion. Airtel acquired Essar’s subscribers, GSM
licences and subscriber-related contracts.
The CA is
demanding Sh2 billion for spectrum fees, Sh30.2 million for initial
annual operating fees, outstanding frequency fees of Sh24.9 million and a
penalty payment of Sh1.5 million to renew Airtel’s licence.
Airtel
had also claimed that the KRA’s suit was filed outside the time
provided for by law hence should have been tossed out. The KRA, however,
insists that it sued the telco within 30 days of declaring its
intention to appeal the local committee’s ruling
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