KENYA REVENUE AUTHORITY WINS 255M TAX APPEAL

KRA WINS 255M TAX APPEAL

By Donald Kogai

The Kenya Revenue Authority won a tax suit filed by

Highlands Mineral Water Company Limited challenging a tax

demand of Kshs.155.4 Million. This is after the Tax

Appeals

Tribunal dismissed with costs, the Water Company’s Appeal

against KRA. The amount demanded include interests and

penalties.

The dispute emanated after KRA’s decision to disallow the

Water Company’s Input VAT claimed on self-assessment VAT

returns submitted late, on account of being time barred

contrary to Section 17(2) of the VAT Act due to late

filing

of the VAT returns inclusive of penalties and interest.

The Water Company in its appeal had faulted

KRA’s position that input tax is only deductible

when VAT returns are filed in accordance with

Section 17 (2) of the VAT Act.

Section 17(2) provides if at the time when a

deduction for input tax would otherwise be

allowable under subsection (1), the person does

not hold the documentation referred to in

subsection (3), the deduction for input tax shall

not be allowed until the first tax period in which

the person holds such documentation. The law

further states that the input tax shall be

allowable for a deduction within six months

after the end of the tax period in which the

supply or importation occurred.

KRA’s position was that Section 44 (1) of the

VAT Act requires every registered person to

submit a return in the prescribed form and

manner in respect of each tax period not later

than the twentieth day after the end of that

period. The Water Company had filed its input

tax claim late and hence was disallowed by

KRA.

The Tribunal reaffirmed KRA’s position that it is

not in dispute that the only avenue for

reclaiming deduction of input is through filing

of a VAT return.

Section 44 (1) of the VAT Act requires that the

VAT return in respect of each tax period should

be filed by a registered taxpayer not later than

the twentieth

day after the end of that period. This is unless

a taxpayer has sought and obtained an

approval by the Commissioner for extension of

time under Section 44 (2) (repealed by Finance

Act, 2018).

It would follow that where a taxpayer has filed

its VAT returns late, and then input VAT will only

be allowed for deductibility to the extent that it

is within six months at the time of filing the

return. The six -month period limit would only

cease to apply where the taxpayer had sought

and obtained the Commissioner’s approval to

submit a late return.

The wording of Section 17(2), in the Tribunal’s

view, is clear and unambiguous and cannot be

interpreted to have any other meaning. The

Tribunal therefore disagrees with the

Appellant’s contention that s six months’ cut-off

period should apply to period VAT return relates

to irrespective of the date of submission of the

return.”

The Water Company has since appealed the

Tax Appeals decision to the High Court of

Kenya and was on 29th April 2020 granted

reprieve to give bank guarantee of ten million

shillings to KRA pending hearing and

determination of the appeal in the High Court.