The Tax Appeals Tribunal has invalidated a Sh780 million tax assessment imposed on Bboxx Capital Kenya by the Kenya Revenue Authority (KRA), ruling that the tax authority failed to adequately justify its calculations.

Disputed Tax Assessment

KRA had charged Bboxx Capital a corporation tax bill for 2019 amounting to Sh780 million, which included Sh450.9 million in principal tax and Sh329 million in interest. The dispute arose after KRA treated Sh1.53 billion worth of Bboxx’s lease stock as under-declared credit sales and applied a 30 percent margin to compute taxable income. Additionally, KRA added back a Sh33.7 million asset write-off to the tax base.

Business Model and Tax Implications

Bboxx Capital finances solar home systems sold through pay-as-you-go instalments. The company’s audited financial statements classify these transactions as hire-purchase agreements rather than leases, emphasizing that customers pay towards eventual ownership.

The tribunal concurred with KRA that the pay-as-you-go model generates taxable business income, rejecting Bboxx’s claim that customers merely rent the equipment. It found that contracts specified purchase prices, down payments, and final payments, with ownership transferring after full payment completion.

Tribunal’s Findings on KRA’s Assessment

  • The tribunal dismissed the 30 percent margin applied by KRA, noting it was unexplained in the assessment and subsequent objection ruling.
  • KRA failed to demonstrate how much of the Sh1.53 billion lease stock represented goods supplied in 2019, nor rebutted Bboxx’s detailed reconciliations and ledgers.
  • The add-back of the Sh33.7 million asset write-off was also rejected, as the assets were fully depreciated with zero book value, meaning no gain or loss arose from their removal.

Consequently, the tribunal declared KRA’s tax assessment arbitrary, lacking factual basis, and unjustified.

Context of Similar Tribunal Rulings

This ruling aligns with prior tribunal decisions where KRA’s use of arbitrary margins to estimate taxable income was overturned. For instance, in 2024, a petroleum distributor’s tax bill was reduced after the tribunal ruled that mark-ups on cost of sales must be supported by adequate records or verifiable evidence.

The Bboxx case underscores the necessity for tax assessments to be grounded in clear, documented facts rather than unexplained estimations.