Fine Spinners Limited Faces Major Setback in Tax Dispute with KRA

A company linked to prominent Kenyan billionaire Jaswinder Bedi, Fine Spinners Limited, has been dealt a significant blow by the Tax Appeals Tribunal in a high-stakes tax dispute with the Kenya Revenue Authority (KRA).

The tribunal upheld KRA’s decision to impose a higher Capital Gains Tax (CGT) and apply an updated exchange rate on the sale of a Nairobi property, ordering the textile manufacturer to pay Sh81.3 million in taxes and interest.

The dispute centers on the sale of a property in Nairobi’s Industrial Area to Laborex Limited, a pharmaceutical distributor, for $6 million (approximately Sh862.2 million at the July 2023 exchange rate of Sh140.37).

Fine Spinners argued that the transaction was finalized in December 2022, when the CGT rate was 5% and the exchange rate was Sh120, valuing the property at Sh720 million.

This would have resulted in a CGT liability of Sh26 million, which the company claims it paid in January 2023.

However, KRA contended that the transaction was completed on July 10, 2023, as evidenced by the payment of stamp duty on that date.

At that time, the CGT rate had been tripled to 15% under the Finance Act of 2023, and the exchange rate had risen to Sh140.37.

The tribunal, chaired by Christine Muga, sided with KRA, ruling that the transfer and payment occurred in July 2023.

Consequently, Fine Spinners was assessed a CGT of Sh77.8 million, plus Sh3.9 million in interest, totaling Sh81.3 million.

“The Tribunal finds and holds that the Appeal fails,” the five-member bench declared, dismissing Fine Spinners’ appeal to reverse KRA’s assessment.

The tribunal further noted that CGT liability is triggered when the seller receives full payment, not when the property transfer is registered.

Fine Spinners’ claim that delays by the Ministry of Lands caused the late transfer was rejected, as no evidence was provided to show payment was received before July 2023.

The ruling marks a significant moment in Kenya’s evolving tax landscape, particularly for the property market, which has seen increased scrutiny following the tripling of the CGT rate in January 2023.

The government’s move to raise the tax rate from 5% to 15% was aimed at capitalizing on the booming real estate sector and a surge in mergers and acquisitions.

Fine Spinners had challenged KRA’s assessment on March 11, 2024, arguing that the exchange rate applied was incorrect and that the transaction predated the CGT hike.

However, KRA’s review of the company’s records, including the July 2023 stamp duty payment, solidified its position. The company’s objection was overruled, leading to the tribunal appeal on June 21, 2024.

This case underscores the complexities of tax compliance in property transactions and the importance of precise timing in determining tax liabilities.

For Fine Spinners, the tribunal’s decision not only imposes a hefty financial burden but also highlights the risks of miscalculating tax obligations in a rapidly changing regulatory environment.

As Kenya continues to tighten its tax regime, businesses and investors will need to navigate these challenges with greater diligence to avoid similar disputes.

For now, Fine Spinners must contend with the tribunal’s ruling, which serves as a stark reminder of KRA’s resolve to enforce compliance in high-value transactions.