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Audit reveals EAPCC’s tax defaults and salary woes, totaling billions

Kevin Cheruiyot by Kevin Cheruiyot
December 1, 2023
in News
Reading Time: 2 mins read

East African Portland Cement Company (EAPCC) faces significant financial challenges, according to a recent review of its financial statements by the Auditor-General. The state-owned firm has defaulted on taxes and salaries totaling a staggering KES 3.6 billion as of June 2023.

The audit report highlights cash flow constraints, preventing the company from settling amounts due to statutory authorities. Among these outstanding payments are KES 1.7 billion for Pay As You Earn (PAYE), a Value Added Tax (VAT) balance of KES 247.0 million, and pension liabilities of KES 159.0 million, encompassing principal, penalties, and interests. Additionally, the company grapples with unpaid salaries based on the Collective Bargaining Agreement (CBA) terms, with an estimated total exposure of KES 1.5 billion.

The Kenya Revenue Authority (KRA) initially assessed the tax payable at KES 2.6 billion, but the amount was later reduced to KES 1.7 billion following an audit spanning 2005 to 2008, covering corporate taxes, employee taxes, withholding tax, and VAT. Despite EAPCC having paid KES 122 million and appealing against a further KES 473.0 million through the local committee (which ruled in favor of the company), KRA filed a notice to appeal in the High Court against the Local Committee ruling. However, the substantive appeal to the High Court has not been filed by KRA, and the directors express the view that no additional liabilities will arise from these matters.

Former employees of EAPCC have been granted permission to seize the company’s bank accounts to enforce their claims, as the Court of Appeal emphasized that the company had not fulfilled previous court orders and consent agreements with its employees.

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The company’s financial woes are further compounded by its consistent losses, prompting it to rely on the sale of its land holdings to alleviate some of its debt. In the year ending June, EAPCC raised KES 2.1 billion from land sales, contributing to debt repayments of KES 2.1 billion. The company reported a loss of KES 1.3 billion during this period, reversing a net profit of KES 541.5 million from the previous year, primarily attributed to gains on its investment property.

EAPCC is navigating a challenging financial landscape marked by tax defaults, salary arrears, and a reliance on asset sales to meet its financial obligations. The company’s ongoing struggles underscore the need for comprehensive measures to address its financial stability and ensure its sustainability in the long run.

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