KENYA – The High Court has stopped Ukwala Supermarkets from completing the sale of its outlets to Botswana’s Choppies Enterprises until it has heard a Sh946 million tax dispute between the retailer and the Kenya Revenue Authority.
Justice George Odunga yesterday issued the temporary order after the KRA said it may not recover the amount in case it wins the case after Ukwala’s sale to Choppies.
Ukwala filed the suit in September after the taxman slapped it with the Sh946 million demand for corporate, Pay-as-You-Earn (PAYE) and withholding tax for the period 2011-2014.
In his ruling, Justice Odunga told Ukwala that it can only go ahead with the sale if it deposits Sh946 million in court as security in the event the KRA wins the suit.
“The applicant is hereby restrained from disposing of its outlets until further direction from the court. In the alternative, Ukwala deposits security for the full amount in court,” the judge held.
Choppies in June announced it had reached a deal to buy 10 Ukwala stores, five of which are located in Kisumu, three in Nairobi and one in Nakuru and Bugoma. The Botswana chain last month got the Competition Authority of Kenya’s (CAK) blessing to go ahead with its takeover of Ukwala.
The retailer, listed on both the Botswana and Johannesburg stock exchanges, will become the first foreign supermarket to successfully enter Kenya through an acquisition if the deal with Ukwala is successful.
The taxman says Ukwala has admitted to owing Sh101 million in taxes and should not be allowed to escape payment until the judge has determined how much the retailer owes in revenue.
The KRA had prior to Justice Odunga’s orders sent agency notices to Equity Bank, KCB and Diamond Trust Bank seeking to compel them to deduct the Sh101 million admitted tax from Ukwala’s accounts. The banks, however, stated in response that they held no funds on behalf of Ukwala.
Ukwala is also seeking to jail the KRA officials for continuing their assessment of the retailer’s books after being ordered to desist in September.
“The orders of Justice Odunga were duly extracted and served upon the Commissioner of Domestic Tax and the Commissioner of Income Tax together with penal notices endorsed thereon. The orders have not been obeyed but instead flagrantly disobeyed by the respondents,” Ukwala says.
Ukwala has cried foul over KRA’s decision to send a copy of its demand to Choppies, which it says is not a party to the dispute.
The KRA declined to withdraw the letters despite demand from Ukwala.
The retailer also insists that its Nakuru and Kisumu subsidiaries, which are run independently, do not owe the KRA any taxes.
The taxman, however, holds that the order has stopped it from carrying out it mandate duty as prescribed in the law, and wants the judge to reverse his decision.
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.