KRA Wins Sh1.79 Billion Tax Case Against Naivas Supermarket

The Kenya Revenue Authority (KRA) has secured a major victory in a long-standing tax dispute involving the sale of shares in Naivas Supermarket. The Tax Appeals Tribunal (TAT) ruled that Gakiwawa Family Investments (GFI), the Mauritian-based holding company for the retail giant, is a tax resident of Kenya, making its offshore share deals liable for local taxation.

This landmark decision centers on a Sh1.79 billion tax assessment following a minority stake sale to international investors.

How ‘Exit’ Prepared for Multi-Billion Stake Sale

1. Professionalizing the Board (2018–2020)

Long before the first stake sale, the Mukuha family recognized that to attract serious international buyers, they needed to move away from traditional family management.

• External Advisory: In 2018, they hired Andreas von Paleske (formerly of South Africa’s Massmart) as a strategy advisor. He later became the chief strategy officer and eventually the CEO.
• Governance Audit: The family implemented rigid corporate governance structures and financial controls, which made the business “audit-ready” for private equity firms.

2. The “Phased Exit” Strategy

The family did not sell the whole Naivas Supermarket business at once. They used a staged approach to maximize the company’s valuation:

• The 30% Initial Stake (2020): They sold a minority stake to a consortium led by Amethis Finance, which included the International Finance Corporation (IFC). This brought in fresh capital to fund aggressive expansion without the family losing control.
• The Buy-Out & Re-Sale (2022): The Amethis-led consortium exited after only two years, selling their 30% stake to IBL Group (a Mauritian conglomerate). At this stage, the family sold an additional 10%, reducing their holding to 60% and pocketing billions in the process.
• Ceding Control (2023–2024): The most recent phase involved the Mukuha family selling a further 11% stake to IBL Group for approximately Sh5.8 billion. This officially made IBL the majority shareholder with 51%, marking the family’s transition from owners to minority partners.

3. Aggressive Expansion to Inflate Valuation

While rivals like Tuskys and Nakumatt were collapsing, Naivas spent 2021–2023 opening branches at a record pace. They specifically targeted the prime locations left behind by failed retailers.

This “last man standing” strategy made them the only viable national-scale acquisition target for foreign investors looking to enter East Africa.

4. Strategic Use of Offshore Holding Companies

As revealed in the recent KRA tax dispute, the family moved the ownership of Naivas Kenya under Naivas International (Mauritius) and Gakiwawa Family Investments.

This was a clear preparation for an exit, as holding companies in tax-friendly jurisdictions like Mauritius are standard practice for large-scale international mergers and acquisitions (M&A).

The Core of the Controversy

The dispute began when GFI sold a 30% stake in Naivas International Limited (Mauritius) to Amethis Retail for approximately Sh5.2 billion. GFI argued that as a Mauritian-registered entity, the gains from this transaction should not be subject to Kenyan corporate tax.

However, the KRA moved to appoint Naivas Kenya Limited (NKL) as the tax representative for GFI, demanding the Sh1.79 billion in taxes, penalties, and interest.

The controversy hinged on the legal definition of “management and control.” While GFI claimed its strategic decisions were made in Mauritius by Mauritian directors, the KRA provided evidence that the “real” control remained in Nairobi.

The Tribunal agreed, noting that the majority of GFI’s directors were Kenyans residing in Kenya and that key financial authorizations for the Mauritian bank accounts were initiated from Kenya.

Implications of the Ruling

• Substance Over Form: The ruling emphasizes that mere incorporation in a tax-friendly jurisdiction like Mauritius does not shield a company from Kenyan taxes if its operations are managed locally.
• Adventure in Trade: The Tribunal dismissed GFI’s claim that the shares were a long-term investment, classifying the quick acquisition and disposal as an “adventure in the nature of trade,” which is taxable as corporate income rather than just capital gains tax (CGT).
• Tax Representative Liability: This case sets a precedent where Kenyan subsidiaries can be held liable for the tax debts of their offshore parent companies.

Despite the legal battles, Naivas Supermarket continues to dominate the local retail market. As of April 2026, the supermarket has shifted focus back to its consumers, launching the “Kikapu Kibonge” promotion to help Kenyans manage the high cost of living, even as its board navigates the complex fallout of this tax ruling.