Return Iranian businessman’s passport, high court tells Kenya’s tax authorities

22 February 2019 · Carmel Rickard

WHEN Iranian businessman Seyed Khavidaki took on Kenya’s tax authorities, not many people would have put money on a bet that he would win. He is, after all, the Kenya country representative of an outfit that allegedly owes Kshs188-m in tax and he is also the only avenue through which the revenue authority can reach the company concerned which has its base in the United Arab Emirates. To keep him in the country, Kenya’s official confiscated Khavidaki’s passport and issued a notice prohibiting him from leaving the country. But he has won at least a temporary victory, with the court ordering his passport returned and the prohibition notice lifted – pending resolution of the tax dispute.

Read the judgment on Kenya Law

Battle-lines were drawn early in November when Seyed Khavidaki arrived in Kenya. His passport was withdrawn and he has been forbidden to leave the country. The revenue authorities, who took these steps against him, said they were investigating more than Kshs 188-m in overdue tax, owed by Farab International FZE Ltd.

Khavidaki then took the matter to the constitution and human rights division of Kenya’s high court.

Pending the full hearing of a petition challenging actions taken by the revenue authorities, Khavidaki asked the court for the immediate return of his passport and for the authorities to be barred from arresting or threatening him in connection with the tax they say is owed by the company.

In his judgment on the interim order, Judge Chacha Mwita said that according to Khavidaki’s founding affidavit, he was a non-citizen who travels extensively in East Africa representing the interests of Farab International. He was not in Kenya at the time the order preventing him from leaving the country was issued, but when he arrived in Nairobi he was “accosted” by officials who took away his passport and served him with an order prohibiting him from leaving Kenya.

He said he had gone to Kenya in order to deal with the company’s alleged tax bill but that he had only limited association with the company, was not a director, shareholder or manager, and “did not derive any financial benefit” from it.

The company had instructed a tax consultant to deal with the dispute and an objection had been filed against the tax claimed. Khavidaki argued that the order preventing him from leaving the country was issued “maliciously” to force him to help revenue officials “get to the directors of the company”. In doing so they violated his fundamental rights.

In the absence of his passport he had been confined to a hotel and cannot leave the building. “Thus he has been forced into solitary confinement”, he claimed.

His lawyers had argued that the action taken against him was illegal and violated among others his right to dignity and to fair administrative action.

Lawyers for the tax authorities, on the other hand, said paying tax was obligatory under the constitution, and his right to dignity, for example, could not trump the obligation to pay tax. They argued that where directors of a company were not in Kenya, they were allowed to act against “an authorized officer” – in this case, Khavidaki. If his passport were released, he could not be prevented from leaving Kenya and the limitation of his rights in this case was legitimate.

Judge Mwita said the order sought by Khavidaki did not require him to investigate the issues of the petition. All he was being asked to do at this stage was to decide whether Khavidaki had satisfied the requirements for a temporary order. To do that he had to show that he had an “arguable case” and that if the order were not granted he would continue to suffer prejudice and his rights would continue to be violated. This did not necessarily mean that his case would succeed when the petition was fully considered at a later stage.

The right to movement was fundamental and related to that there was the question “whether someone can be confined to a hotel room and unable to venture out for fear of arrest for lack of travel documents”. The order barring Khavidaki from leaving the country did not indicate for what period he would “remain confined, unable to move or transact any business”.

These issues, connected to the constitutional right to dignity, were issued that would be considered at the trial.

There was also a dispute over his function in the company. While he said he derived no financial benefit from Farab International and was neither a director nor a “controlling shareholder”, the order preventing him from leaving Kenya named him as “country director”. His actual relationship to the company was not clear, said the judge, because the documents attached to the application did not show him to be a director.

The judge said there was still some way for the tax dispute itself to go before resolution and it could even end up in the courts. “It must also be clear that mere tax demand notice may not necessarily mean tax is due. It is subject to confirmation once the dispute is heard and when that happens is not clear.”

In such a situation a judge had to “opt for the lower risk as opposed to the higher of injustice”. And in Khavadaki’s case there was a higher risk of injustice warranting the court’s intervention than there would be if the judge were to refuse the application – without such an order, his rights would continue to be violated given that the tax dispute could take some time to resolve during which time he would remain confined an unable to move around.

Judge Mwita therefore order that the prohibition on Khavadaki leaving the country was suspending, pending the hearing of the full petition, that his passport had to be returned, again, pending the hearing of the petition and that the petition itself should be “fast tracked and heard without delay”.

According to initial news reports of the confiscation of Khavadaki’s passport the Kenya revenue authorities have been stepping up efforts to “seal revenue leakages and pursue tax cheats”. Tax officials were also quoted as saying that all the company’s directors were Iranians and that there were no “tangible assets” in Kenya that could be used to secure the taxes.

The firm had built a private power plant in Bungoma and the dispute relates to its Ksh782-m contract for the plant. Business Daily Africa reports that the company argues that when it signed the contract it understood that power projects were exempt from taxation and that because of this “misunderstanding”, it “did not include the tax cost in its pricing”.

Carmel Rickard

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