NCBA gets temporary court reprieve in merger tax fight
Friday April 28 2023
NCBA Group has received a temporary court order protecting it from paying taxes arising from the merger of its former constituents NIC Group and CBA Group.
The lender went to court after Treasury Cabinet Secretary Njuguna Ndung’u on March 24 revoked the capital gains tax exemption on the transfer of shares, assets and liabilities in the merger.
The banks merged at the end of September 2019 through a share swap and obtained a capital gains tax exemption from the former Treasury CS Henry Rotich, saving the bank hundreds of millions of shillings.
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“By a copy of this letter, the Group Managing Director of NCBA is advised that the approval for exemption of the Capital Gains Tax that was payable on the transfer of shares and the transfer of assets and liabilities relating to the merger of NIC Group and CBA Group has been revoked,” the CS wrote to the acting Commissioner General at the Kenya Revenue Authority.
“… as well as the letter communicating the approval dated June 21, 2019, and should liaise with Kenya Revenue Authority on this matter.”
Capital gains taxes, currently set at 15 percent, are levied on the transfer value less adjusted cost.
The High Court has meanwhile temporarily protected NCBA from paying taxes on the transaction as the matter goes through hearings and eventually to a determination.
“That I am satisfied that the application has met the test for grant of conservatory orders at this ex parte stage. Accordingly, prayer 2 of the application is hereby granted,” Lady Justice Mugure Thande ordered in a ruling issued on Thursday.
NCBA, whose top owners are the families of Jomo Kenyatta and Philip Ndegwa, has filed a constitutional petition asking the High Court to restrain KRA from implementing the orders and collecting the taxes.
In a case filed on its behalf by Senior Counsel Kamau Karori, NCBA described Prof Njuguna’s revocation order as “irrational, illegitimate and without any legal basis.”
The bank has grown substantially following the merger, posting a Sh13.7 billion net income in the year ended December 2022.
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According to Mr Karori, the CS for National Treasury has no power to revisit the exemption decision once he has given it.