Car & General (C&G), a prominent Kenyan firm listed on the Nairobi Securities Exchange (NSE), finds itself entangled in a tax dispute with the Kenya Revenue Authority (KRA), spotlighting a chapter of financial turbulence.
In its latest annual report, C&G unveiled KRA’s issuance of three separate tax demands amounting to Sh468 million (US$4.2 million) for the fiscal year ending December 2023. This development unfurled against a backdrop of strain, as C&G disclosed a net loss of Sh273.7 million (US$2.5 million) during the same period, primarily attributed to a blend of factors including substantial foreign exchange and demurrage costs totaling Sh826 million (US$7.4 million).
At the crux of the tax discord lies the classification of import duties for C&G’s three-wheeler business (tuk tuks) and the transfer pricing methodologies employed by its subsidiary, Cummins C&G Limited.
Initially, KRA levied a hefty demand of Sh677 million (US$6.1 million) in back taxes pertaining to tuk tuks imported between 2015 and 2021. Following contentious legal wrangling, KRA withdrew the claim, only to reassert a fresh demand of Sh224 million (US$2 million) for the period spanning January 2022 to January 2023, citing persisting classification discrepancies.
Simultaneously, KRA conducted a rigorous transfer-pricing audit on Cummins C&G Limited, resulting in supplementary income tax assessments of Sh109 million (US$1 million) for 2017 and Sh135 million (US$1.2 million) for the years spanning 2018 to 2021. C&G vehemently contests these assessments, with both parties deferring to the Tax Appeals Tribunal for adjudication.
Amidst this intricate tax saga, C&G navigated the acquisition of the remaining 50 per cent stake in Cummins C&G Holdings Limited, formerly a joint venture with CMI Africa Holdings BV, in June 2023. This strategic move injected Sh112 million (US$1 million) into C&G’s profit between the acquisition and the reporting date, although the delayed completion of the acquisition weighed on full-year group revenue and profit projections.
Adding another layer of complexity, C&G underwent a shift in its financial year-end from September to December 2023, resulting in an elongated 15-month reporting period. Consequently, a net loss was recorded, diverging from the Sh679.46 million (US$6.1 million) net profit reported in the preceding 12-month period.
Peering into the horizon, C&G braces for a terrain riddled with uncertainties, encompassing ongoing tax disputes and the ramifications of a recent acquisition. Furthermore, the motorcycle business, a pivotal segment, grapples with challenges posed by escalating fuel prices and inflationary pressures. The forthcoming year’s performance hinges on C&G’s adeptness in navigating these multifaceted challenges whilst weathering the prevailing economic climate.
