KRA targets geothermal agency accounts over Sh6bn unpaid taxes

The CEO of the Geothermal Development Company Paul Ngugi before the Public Investments Committee on Commercial Affairs and Energy at the Parliament buildings on May 4, 2023. PHOTO | DENNIS ONSONGO | NMG

The taxman has given notice to freeze the accounts of the Geothermal Development Company (GDC) over Sh6 billion in tax arrears that have remained outstanding for more than seven years.

The State-owned corporation has failed to clear the corporation tax and related penalties arising from the sale of steam to the Kenya Electricity Generating Company (KenGen).

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The National Assembly’s Public Investments Committee on Commercial and Energy heard that GDC has to date accumulated Sh6 billion in tax arrears, up from Sh3 billion in 2018.

“The tax due as we speak is Sh6 billion having risen from Sh3 billion in 2018. We have since received an agency notice from KRA seeking to freeze our accounts,” Paul Ngugi, GDC managing director, told MPs.

Mr Ngugi, who took office barely a week ago, said the GDC had written to the Treasury seeking abandonment of the tax arrears.

The GDC is required to comply with tax laws and other related regulations, including remission of taxes to the Kenya Revenue Authority (KRA), as per the prescribed rates and remittance dates.

Mr Ngugi said the GDC collects between Sh3 billion to Sh4 billion annually in sales of steam power to KenGen.

“Corporation tax is a big burden to the company and we approached the National Treasury which gave us a tax relief. We are now able to expand following this relief,” he said.

Mr Ngugi was taken to task to explain why GDC sought the Treasury’s help instead of the KRA, which has the power to waive the taxes.

He sought more time to consult on the issue of the tax arrears and table a comprehensive report on the matter.

Mr Ngugi appeared before the committee chaired by Pokot South MP David Pkosing to respond to queries raised by Auditor-General Nancy Gathungu on non-payment of corporate tax by GDC.

The audit revealed that a change in the company accounting policy on revenue from the steam sales impacted the outstanding corporation tax and related penalties.

She said the statement of financial position reflects the current tax liability of Sh197.8 million as at end of June 2021.

However, Ms Gathungu said the audited financial statements for the year 2018/19 revealed that the outstanding taxes amounted to Sh4 billion accruing from 2014/15 to 2018/19 financial years.

The audit revealed that the accrued interests and penalties amounted to Sh364.5 million which arose from non-payment of income taxes.

In the year to June 2019, the outstanding interest and penalties amounted to Sh1.44 billion. Ms Gashing said it was not clear how the tax obligation from prior years were settled.

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The auditor said the financial position reflects a nil current tax liability as at end of June 2021 but the audited financial statements for 2018/19 financial year, indicated there were unpaid taxes totalling Sh4 billion that had accrued from 2014/15 to 2018/19 financial years.

“However, a change in the company’s accounting policy on steam charges revenue in the year 2019/20 reduced outstanding corporation tax and related penalties as at June 30, 2029 by Sh2.5 billion to Sh197.8 million,” Ms Gathungu said.

“The balance had, however, not been agreed with the Kenya Revenue Authority as at the end of June 2021,” Ms Gathungu said.

She said in the circumstance, the accuracy of the nil current tax liability balance reflected in the financial statements could not be confirmed.

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