INCOME TAX AUDIT POWERS SURVEY

In a recent case heard before the Commissioner the Department were found to have acted wholly unreasonably and showed bad faith.

The local Tax District investigated the accounts of the restaurant run by Mr and Mrs Shah. The Inspector was concerned that the gross profits returned by the business were below those of other businesses of a similar nature in the area. The Department’s enquiry’s continued for some 2 years during which the Inspector failed to support his contentions. As the Department failed to prove any inaccuracies, Mr Shah’s accountant tried to persuade the Inspector to agree the accounts. He found this difficult and the Inspector appeared to adopt a prejudicial attitude towards him. He therefore engaged us as tax investigation specialist.

An election to have the case heard before the local committee was made and at the hearing it was held that the Income Tax Department had acted unreasonably. Accordingly no further tax was payable and the accounts were agreed. The provisions of the Income Tax Act do not allow Mr and Mrs Shah to claim costs. To date we understand that Mr and Mrs Shah have incurred Kshs 500,000.

From June 1998 the Department has the automatic right to investigate the self assessment returns of clients without giving a reason and it will be interesting to see if Inspectors prove as intransigent as they did towards Mr and Mrs Shah.

The Department recently suffered an unusual defeat at the hands of a court of appeal, which promises to have far reaching consequences for the way that an important element of prosecution work is handled.

In August this year, the Department’s officials were granted search warrants to enter premises and seize relevant materials. One search warrant was exercised in the case of a firm of accountants who duly gave full co-operation to the officers concerned when they came knocking on the door.

The Department wishes to seize back up information stored in the firm’s computer because it believed that it contained information relevant to its suspicions. In doing so, however, information would become available for inspection by the Department about parties who were not the subject of the search warrant.

The firm sought the opinion of counsel who made an emergency application to an appropriate judge for a review against the department. He ordered that the search on the firm’s premises should seize pending a hearing. Not only did the department continue their search after the order had been made but even extended the search to other parts of the premises even though both the firm and its counsel pointed out that these actions amounted to a contempt of court.

The Department subsequently had to apologise to the court and it escaped being held in contempt of court by a hairsbreadth. The upshot is that procedures for the execution of search warrants are being fundamentally reviewed and, in the meantime, all search operations appear to have been temporarily suspended.

If the Department had proceeded with more caution and appreciation of the law then perhaps they would have got excess to the computer material with far less fuss than in fact occurred and avoided considerable embarrassment.

BUSINESS TRAVEL PLANS

DECEMBER 1998

Offshore Investments - Bakul Kothari

JANUARY 1999

Self Assessment Tax Returns -

Man is still the most extraordinary computer of all (John F. Kennedy)

Luck is a matter of preparation meeting opportunity (Oprah Winfrey)

The game of life is not so much in holding a good hand as playing a poor hand well (H. T. Leslie)

Everywhere is walking distance if you have the time (Steven Wright)

We are what we repeatedly do. Excellence, then, is not an act, but a habit (Aristotle)

Where there is an open mind, there will always be a frontier (Charles Kettering)

The trouble with life in the fast lane is that you get to the other end in an awful hurry (John Jensen)

The saints are the sinners who keep on trying (Robert Louis Stevenson)

Old age is like everything else. To make a success of it, you’ve got to start young (Fred Astaire)

One of the greatest labour saving inventions of today is tomorrow (Vincent T. Foss)

The only place where success comes before work is in a dictionary (Vidal Sassoon)

Statistician: A man who can go directly from an unwarranted assumption to a pre-conceived conclusion (Unknown)

Genius begins great works; Labour alone finishes them (Joseph Joubert)

There is no abstract art. You must always start with something (Pablo Picasso)

Always take a job that is too big for you (Harry Emerson Fosdick)

Great moments in science: Einstein discovers that time is actually money (Gary Larson on cartoon caption)

A fanatic is one who can’t change his mind and won’t change the subject (Sir Winston Churchill)

Sleep, riches, and health, to be truly enjoyed, must be interrupted (Jean-Paul Richter)

A true friend is someone who is there for you when he’d rather be anywhere else (Len Wein)

The more you stretch the truth, the easier it is to see through it (Unknown)

If your friend won’t lend you five thousand shillings, he’s probably a close friend (Unknown)

TAX REMINDER

ALEXANDER GRANT & ASSOCIATES

VICTOR HOUSE, 4^TH FLOOR, KIMATHI STREET, NAIROBI, KENYA

Telephones: 002542 221306 / 245694 Facsimile : 002542 224314

Although all reasonable care has been taken in the preparation of this news briefing, Alexander Grant & Associates cannot accept any responsibility in law for its contents. Clients are advised to seek independent professional advice before taking action in consequence of anything contained herein.