KRA wins Sh317.9million tax battle against KPLC supplier Harley Berry

Harley Berry Limited, a company fully owned by serial Kenya Power and Lighting Company (KPLC) supplier Dennis Mbwika Muthenya, has lost a Sh317.9 million tax dispute after the Tax Appeals Tribunal upheld a Kenya Revenue Authority (KRA) assessment against the firm.

The tribunal dismissed Harley Berry’s appeal, ruling that the company failed to provide sufficient documentary evidence to support input Value Added Tax (VAT) deductions it had claimed for the 2022, 2023 and 2024 tax periods.

The Commissioner of Domestic Taxes issued the additional VAT assessment on March 26, 2025, after KRA identified discrepancies in the company’s VAT returns and claims.

Harley Berry objected to the assessment on May 27, 2025, but KRA confirmed the entire amount in an objection decision dated July 25, 2025. The company subsequently filed an appeal before the Tribunal in September.

In dismissing the appeal, the Tribunal said Harley Berry had failed to discharge its burden of proving that KRA had erred in confirming the assessment.

“The tribunal finds that the appellant failed to file documents to demonstrate that the Respondent erred in confirming the assessment. The Appellant failed to discharge its burden of proof,” the Tribunal ruled.

It added: “Consequently, the Tribunal finds and holds that the Appellant failed to demonstrate that the Respondent erred in confirming the assessment.”

The tribunal found that the company did not produce key records, including invoices, supplier confirmations, bank statements and other documentation required under Section 17(3) of the VAT Act to substantiate its input VAT claims.

Under the law, businesses seeking to offset input VAT against output VAT must maintain prescribed supporting records, including valid tax invoices, and demonstrate that the purchases relate directly to taxable supplies.

Harley Berry argued that KRA had confirmed the assessment before it could obtain all the documents it needed from its suppliers and archives. The company said tracing manual records had proved difficult, while some suppliers had failed to provide copies of invoices and receipts despite repeated requests.

The firm also argued that some transactions could be verified through iTax and the Electronic Tax Invoice Management System (eTIMS), and therefore the corresponding input VAT should have been allowed.

Mbwika’s firm told the Tribunal that it had engaged KRA’s Independent Review of Objections team and attended several meetings to explain its position and provide supporting information. It claimed statutory timelines forced KRA to issue its objection decision before the review process was fully concluded.

With some records still unavailable, the company asked the Tribunal to permit an average input VAT claim equivalent to 40 per cent of its turnover, arguing that it had provided sufficient pointers to enable reconciliation and adjustment of its tax position.

KRA rebuffed the claims, saying its assessment was properly issued and that Harley Berry had been given adequate opportunity to substantiate its objection.

The tax authority told the Tribunal that the company had filed nil VAT returns between January and July 2022 despite holding withholding VAT credits. After being advised to regularise its filings, Harley Berry filed the outstanding returns on November 20, 2023.

KRA subsequently established that the company had failed to declare sales corresponding to withholding VAT certificates, with the undeclared income subjected to tax.

The authority also said Harley Berry paid Sh1 million on August 27, 2024, towards the tax findings.

Further scrutiny uncovered input VAT claims linked to suppliers who were non-filers, nil filers, non-registered VAT taxpayers or businesses that had failed to declare corresponding sales.

KRA also identified discrepancies involving suppliers such as Coolextreme International Limited and Ndume Chainlinks Limited, whose declared sales were lower than the input VAT claims made by Harley Berry.