KRA is pursuing 1.8 billion Kenyan Shillings from the equity transaction involving Naivas Supermarket.

2020 saw the sale of 31.5% of Naivas Supermarket to Amethis Retail, with the founder’s family receiving KSh 5.2 billion as part of the agreement. The Mauritius deal’s specifics have caused worry from Kenya’s Revenue Authority (KRA). KRA claimed ownership of the retail store had been restructured to avoid paying taxes, and it demanded payment of KSh 1.79 billion from the sale of the business.

The charges that Naivas strategically structured the agreement through Mauritius to cheat taxes in Kenya under the direction of its stakeholders are at the core of the problem. This bold action caused the KRA to take the case to the tax tribunal, which revealed a complex network of business operations.

The late Peter Mukuha Kago’s heirs sold their interests to a group headed by Amethis Retail as part of a complex scheme involving the International Finance Corporation, the German fund DEG, and the private equity firms Amethis and MCB Equity Fund.

The KRA’s reasoning is based on the assertion that, as a result of the transaction being set up in Mauritius, the family, through their investment vehicle Gakiwawa Family Investments, collected an astounding Sh5.2 billion from the purchase. The tax office claims that this arrangement was made to get around Kenyan tax laws.

This story came to an end when KRA’s thorough investigation exposed a sophisticated scheme involving numerous holding companies and subsidiaries that sought to evade Kenya’s corporate tax. Later, the tax tribunal supported KRA’s conclusions, which resulted in the assessment of Sh1.79 billion in taxes, along with related fines and interest, which Naivas is now obligated to pay.

Naivas first disputed the tax demand, claiming it had no authority to act as Gakiwawa’s tax representative. The grocery chain said that it was impractical to assume obligations as Gakiwawa’s tax agent because there was no meaningful connection between its business and its shareholders.

The tribunal’s decision refuted these assertions, stating that the location of control over Gakiwawa’s economic operations was the most important factor.

The holding company, which owns Naivas Supermarkets, was controlled and managed by Kenyan directors residing in Kenya.

The Mukuha family has been orchestrating a series of moves to gradually lower their ownership position in Naivas, and this tax fight is only the beginning. From these deals, the family has been able to acquire billions, demonstrating their wise financial choices.

Although Naivas continues to be a major player in the retail sector, it is important to highlight that the Kenyan grocery business has faced several difficulties. Many other large chains have struggled to remain in business and have failed due to debt or poor management. On the other hand, Naivas has persevered through these difficulties, adjusting to the needs of the market and holding onto its position as a leader in the sector.

The Naivas tax story, in conclusion, sheds light on the complicated business maneuvers used to get around the issues of taxation and ownership. Naivas stands out as a significant success story in the very competitive retail business, navigating the difficulties of the sector when other leading companies failed. This story also highlights the value of following tax laws and the ongoing search for transparency in business interactions. Frimor Safe Way Solutions offers consultancy services regarding tax and proper ways of navigating the tax system to avoid businesses from attracting penalties or fines.