One of Kenya’s biggest agricultural production companies, Kakuzi, faces a probe from the Kenya Revenue Authority (KRA) over alleged tax evasion.
The probe launched by the taxman into the NSE-listed company focuses on deals involving Kakuzi and its majority shareholder – UK firm Camellia Plc. KRA is looking into possible tax losses from transfer pricing.
Transfer price refers to the price at which related parties transact with each other, such as in the trade of goods or services between departments or divisions of the same company. By underpricing or overpricing, companies can manipulate their tax obligations.
“KRA wishes to state that it is currently undertaking internal reviews on transfer pricing and other tax practices of Kakuzi PLC with a view of commencing an in-depth audit work,” Rispah Simiyu, the commissioner for domestic taxes, disclosed.
“This will enable KRA to establish transfer pricing allegations and the company’s dealings,” she added.
The probe comes on the back of the Capital Markets Authority’s (CMA) recent questioning of Kakuzi CEO Christopher Flowers and finance director Ketan Shah over claims of shifting profits abroad and conflict of interest by Camellia Plc.
In its 2021 Annual Report, Kakuzi disclosed how it manages transfer pricing, citing internal policy. Kakuzi contracts with its fellow subsidiaries were worth Ksh369.4 million in 2021 and involved Eastern Produce Kenya Limited, Robertson Bois Dickson Anderson (RBDA) Kenya Branch and Eastern Produce Regional Services Limited.
“The Group transfer pricing policy gives guidance on related party transactions, which are carried out using the arm’s length principle,” Kakuzi says in the annual report.
Kakuzi in the same report broke down its relationship with Camellia. Kakuzi posted a 48.5 per cent decline in profitability to Ksh319 million for the year ended December 2021 on cyclic dips in productivity.
“Camellia Plc is the ultimate parent of the group. There are other Camellia Plc group companies that are related to Kakuzi Plc through common shareholdings,” says the firm in its 2021 annual report.
“Fellow subsidiaries within the Camellia Plc Group act as brokers and managing agents for certain products and operations of the group.”