Q&A – 2 December 2013

VAT on sale of business

I sold my entire business to another company that has been running it since. Our tax consultant told us at the time that there was no VAT that would apply. In a recent audit, TRA have asked for VAT amounting to billions of shillings since with the sale of business I transferred the key property. TRA claims that the property itself, not the land, should have been valued and VAT paid on it. What should I do?
TH, Dar

What TRA is saying is true in that VAT does apply for transactions on built up property and not on land and in your valuation it is the component of the built up property that is chargeable to VAT. However from the brief facts above, we believe that TRA still cannot charge VAT on such a transfer, as correctly spotted by your tax consultant, since the transfer of the business is as a going concern.

Section 62 of the VAT Act states that (1) Where a business or part of a business is assigned (“transferred”), then for the purpose of determining whether the transferee is liable to be registered, the taxable turnover of the business or part transferred shall be added to the turnover of any business carried on by the person to whom the business or part of the business is transferred (“the transferee”). (2) Any liability other than criminal liability of a person transferring a business or part of business shall on and from the date of the transfer, pass to the transferee without affecting the liability of the transferor and such liability shall include the liability to – (a) keep, preserve, or to produce records or accounts; (b) furnish a tax return; or (c) pay any tax or interest under the Act; or (d) comply with any requirement made in particular in respect of the business by the Commissioner. (3) No tax shall be charged or input tax claimed in respect of the transfer where the transferee is registered. (4) Except to the extent that the Commissioner determines otherwise and upon written request or both parties any entitlement under the Act to credit or repayment of input tax that immediately before the transfer took effect was vested in the transferor, shall vest in and become the entitlement of the transferee, and shall cease in so far as the transferor is concerned. (5) Any person who fails to notify the Commissioner of the fact of a transfer within thirty days after it takes effect commits an offence and upon conviction is liable to a fine not exceeding one hundred thousand shillings.

If you are certain that the same business is running now as it was running under your ownership, it would translate into a transfer of a going concern and no VAT applies. For example, a hotel business is sold as a going concern i.e. continues to run as a hotel, then no VAT can be charged on the transaction. However, if a hotel is converted to an apartment building, then the transfer is not a going concern and VAT will likely apply as section 62 will not get triggered.

Intoxication as a defence

My friend had a few extra beers in a night club that his friends had mixed with Konyagi. He ended up punching someone on the dance floor breaking his nose. What defence is available to him? Can I not claim that he was insane?
JI, Dar

Our criminal laws are embedded in the Penal Code which makes it quite clear that an individual is presumed to be sane unless proven otherwise. Hence this defence is not automatic.

Section 13 and 14 of the Penal Code are relevant to this question. Section 13 states. A person is not criminally responsible for an act or omission if at the time of doing the act or making the omission he is through any disease affecting his mind incapable of understanding what he is doing, or of knowing that he ought not to do the act or make the omission. But a person may be criminally responsible for an act or omission although his mind is affected by disease, if such disease does not in fact produce upon his mind one or other of the effects above mentioned in reference to that act or omission.

Section 14 states that (1) Save as provided in this section intoxication shall not constitute a defence to any criminal charge. (2) Intoxication shall be a defence to any criminal charge if by reason thereof the person charged at the time of the act or omission complained of did not know what he was doing and— (a) the state of intoxication was caused without his consent by the malicious or negligent act of another person; or (b) the person charged was by reason of intoxication insane, temporarily or otherwise, at the time of such act or omission. (3) Where the defence under the preceding subsection is established, then in a case falling under paragraph (a) thereof the accused shall be discharged and in a case falling under paragraph (b) the provisions of this Code and of the Criminal Procedure Code relating to insanity shall apply. (4) Intoxication shall be taken into account for the purpose of determining whether the person charged formed any intention, specific or otherwise, in the absence of which he would not be guilty of the offence. (5) For the purpose of this section “intoxication” shall be deemed to include a state produced by narcotics or drugs.

Under section 14(2) above, the fact that the beer was laced with Konyagi might be a good defence. Otherwise intoxication is not a defence and your friend is criminally liable for assault and will, if found guilty, be imprisoned.