High Court restrains Chinese businessman from leaving Kenya over Sh83.5 million tax arrears

Cai Jiupeng was prohibited by the High Court from going back to his country before the settlement of the  tax arrears claiming that he is a flight risk and he might not come back if a departure prohibition order issued by the Directorate of Immigration Services is lifted.

In his ruling, Justice Lawrence Mugambi said that the Kenya Revenue Authority (KRA) and the Immigration Director acted within their mandate in putting in motion preventive measures aimed at curbing losses of the country’s revenue through tax evasion considering that the petitioner is a tax representative of a company that had a substantial tax arrears.

“Article 24 of the Constitution allows for the limitation of rights and fundamental freedoms to the extent that the limitation is reasonable and justifiable and as authorised by the law,” Justice Mabeya stated.

He went on to dismiss Jiupeng’s application, saying it lacks merit but ordered the respondents to shoulder the costs of the case.

Jiupeng had filed an instant petition before the High Court against KRA and the Director of Immigration Services on April 11, 2022 and was supported by his affidavit which stated that the respondents unlawfully restrained him from leaving the country over  the alleged tax arrears of owed by Huiye Kenya Trading Company Limited and Yongluo International Company Limited.

He protested that the respondents issued a departure prohibition order against him in contravention of Section 45 of the Tax Procedures Act as he only learnt about it when he was stopped at the airport when he was leaving to China to visit his family.

Jiupeng also submitted that his freedom of movement as enshrined under Article 39 of the Constitution was curtailed causing him substantial business loss. He also claims to be denied an opportunity and fed for his young family and elderly parents who are in China.

He prayed the court to declare the actions by the respondents to issue the order against him is a violation of his rights under Article 39 of the constitution.

He prayed a conservatory orders be issued to the respondents from restricting his departure or entry in Kenya over alleged tax arrears.

While conducting their Investigations on the companies, KRA submitted that they summoned Jiupeng to provide information of the two companies notwithstanding he was neither a director nor a shareholder or a controlling member of any of the two companies.

KRA also submitted that ut carried Investigations on the company following the information obtained from the company’s bank over suspicious activities in it’s bank accounts.

The Investigations revealed that together with Guo Wendong, Jiupeng was nominated as the company’s signatory to  bank account in to which a deposit of Ksh 67,373,900 and Ksh 98,144,650 had been made respectively.

KRA established that although there were sales made by Huiye Kenya Trading Company Limited, they had filed nil returns for corporation tax purposes and also failed to register for VAT obligations despite dealing with vatable sales that reached the threshold for VAT registration as required under Section 5 of the Value Added Tax Act 2013.

The taxman stated that “the Investigations led to a reasonable ground to believe that the petitioner being a tax representative of the company was a flight risk and could not leave the country without addressing the company’s tax status as required under Section 15 of the tax procedures Act, 2015.”

It submitted before the court that was the reason why they issued a DPO to the petitioner and any other signatory of the company’s bank account in order to prevent revenue leakage.

At the same time, it asserted to exercise the power of the prohibition order against the petitioner as the tax representative of the company in view of the power of attorney executed on April 1, 2019 and registered on April 5, 2019 in which the company vested wide ranging powers and responsibilities upon the petitioner including taking charge of managing all the affairs of the company.

KRA also accused Jiupeng of failing to perform his responsibility as a tax representative of the company hence the first respondent justified issuing of the DPO against him since the taxes of the company where he is a tax representative have not been remitted despite several requests to him.

Christine Kunyua, who swore an affidavit on behalf of the Director of Immigration Services, stated that Jiupeng had not demonstrated any violation and/or threatened violation of his fundamental rights and freedoms by the DIS.

She said the directorate received a letter from KRA dated June 9, 2021, asking them to restrain the petitioner from leaving the country as a result of tax arrears and they acted on the said instructions by activating the petitioner’s name in the immigration PISCES system.

The immigration directorate urged the court to find that the petition is in bad faith and with no legal basis and dismiss the same with costs.

The trial judge noted that the strength of the power of attorney vested in Jiupeng in 2019 that the KRA describes him as a tax representative of the company in accordance to Section 15 (1) (I) of the Tax Procedure Act which provides that,

 “a person can only be a tax representative of a non-resident person if they are in control of a non-resident’s persons affairs in Kenya including being a manager of the business of that non-resident person.”

The judge also noted that the petitioner did not provide proof he responded to the said letters or summons nor evidence on how he intends to address the issue of the tax arrears.

Justice Mugambi added that “the respondents acted on their mandate in putting in motion preventive measures aimed at curbing possible losses of the country’s revenue through tax evasion considering that the petitioner is a tax representative of a company that had a substantial tax arrears. This application lacks merit and is thus dismissed with costs to the respondents