KRA loses Sh3.3bn claim against former Java House owner

The High Court in Nairobi has allowed the voluntary liquidation of the private equity firm that formerly owned the restaurant chain Java House, dealing a significant blow to the tax collection campaigns of the Kenya Revenue Authority (KRA).

The tax authority had strongly opposed the winding-up petition, arguing that the liquidation process was an intentional strategy designed to evade a corporate income tax liability amounting to Sh3.3 billion.

In the judgment, the court dismissed the objections raised by the revenue agency, effectively permitting the corporate dissolution of ECP Kenya Limited to proceed despite the pending multi-billion-shilling tax dispute.

The legal battle stems from a long-running dispute regarding the proceeds from the 2017 sale of Java House to the Dubai-based Abraaj Group, a transaction valued at over 100 million US dollars.

The taxman issued a corporate income tax assessment of Sh3.21 billion against the firm in February 2022, asserting that the earnings from the transaction were taxable as operational business income.

The private equity fund manager contested the assessment, maintaining that the funds constituted investment income and should fall under the capital gains tax regime rather than corporate income tax.

The Tax Appeals Tribunal (TAT) subsequently reduced the tax liability to Sh773.8 million in October 2023, while still affirming that the firm maintained a permanent establishment in Kenya through its local advisory subsidiary.

An appeal filed by the company at the High Court was later dismissed in December 2024 because of a failure to file the required legal submissions and actively prosecute the application.

Following that decision, the firm published a formal notice in the Kenya Gazette, initiating the voluntary winding-up process under the insolvency laws and inviting creditors to declare their positions.

By allowing the liquidation process to move forward, the court decision places a fresh obstacle in the path of the revenue authority, which has been aggressively pursuing back taxes from foreign investment firms exiting the local market.

The outcome highlights the complex regulatory and tax litigation environment that foreign private equity funds navigate when structuring and executing asset divestments within the East African region.