A tribunal has ordered the Kenya Revenue Authority (KRA) to review a Sh972.9 million tax demand against the Kenya Union of Savings and Credit Cooperatives (Kuscco), citing an assessment based on unreliable financial statements.
The Tax Appeals Tribunal set aside the KRA’s decision on February 18, 2025, against the troubled Kuscco and ordered a fresh review using reconstructed financial statements.
The dispute covers corporation tax, withholding tax, value-added tax, and pay-as-you-earn (PAYE) for 2019 to 2022. The ruling does not cancel the tax demand permanently or declare Kuscco tax-free.
Kuscco told the tribunal its forensic audit had identified discrepancies in financial statements for 2018 to 2022, requiring reconstruction after alleged mismanagement by a previous management team.
It said it notified KRA and sought more time to provide corrected accounts. The union argued the authority relied on disputed statements to calculate additional taxes and rejected its objection.
“The respondent erred in relying on financial statements with material misstatements to assess tax on and variances between the erroneous financial statements and tax returns despite having been informed of the same and requested to grant the appellant time to regularize its financial statements,” Kuscco advocates argued.
The Tribunal heard that Kuscco had requested an extension on November 25, 2024, to complete the forensic audit, but KRA declined and issued its assessment four days later for Sh972.9 million.
Kuscco objected on December 24, 2024. KRA confirmed the assessment on February 18, 2025, prompting the appeal, which was filed in April against the Commissioner of Domestic Taxes.
In response, KRA maintained it assessed the union using available records and that Kuscco had not provided enough evidence. It said the union failed to provide schedules for marketing commissions, shared VAT inputs and exempt income.
The authority also said Kuscco had not reconciled withholding tax paid on legal and professional fees, separated interest paid to individuals from interest paid to financial institutions, or supplied details of costs recorded under work in progress for its Kitengela housing project.
Kuscco argued that residential property sales and rent were VAT-exempt, training conducted outside Kenya should not attract local VAT, and withholding tax had been wrongly charged on construction materials, marketing costs and interest payments.
It challenged PAYE on allowances paid to directors and delegates, saying they were not its employees. KRA maintained the payments were compensation for services and subject to PAYE.
The tribunal said the dispute had shifted from whether Kuscco kept records to whether those records were reliable. It noted the union’s financial statements did not reconcile with underlying ledgers and transaction records.
‘The respondent was informed in a timely manner of the inaccuracies identified in the financial statements following a forensic audit,’ the tribunal said.
It found KRA proceeded despite being told the accounts were unreliable. The tribunal said the authority could assess tax using available information, but a taxpayer could complete its records where a genuine, independently supported problem had been shown.
‘The respondent was not justified in confirming the additional assessments on the basis of financial statements it had been informed were erroneous and unreliable,’ the tribunal ruled.
The judgment records that KRA filed written submissions on August 19, 2026, eight days after the deadline. The panel said it did not consider them.
The tribunal allowed Kuscco’s appeal, set aside KRA’s objection decision and sent the matter back for a fresh decision. It ordered Kuscco to submit signed audited financial statements within 14 days of the October 9 judgment.
KRA must then consider the documents and issue a fresh objection decision within 60 days of receiving the signed statements.
The case comes as Kuscco faces scrutiny over its finances following a forensic audit by PricewaterhouseCoopers (PwC).
The audit identified Sh9.3 billion in misstated accounts, which it attributed to understated costs, including commissions and interest expenses, and overstated income that allowed Kuscco to report profits that did not reflect its true financial position.
The report said Sh24.8 billion deposited by 247 saccos was at risk, while Kuscco faced an estimated Sh12.5 billion insolvency. The audit also identified Sh6.5 billion in interdepartmental lending that had not been reported in its books.