Thursday, June 8, 2023

Prior recommendation from Kenya Revenue Authority (KRA) necessary before Taxes can be abandoned

In a ruling dated 16th September 2022, the High Court has ruled that; the KRA ought not to be put in a position whereby it complies with ministerial directives which are illegal or unlawful.

In this case, London Distillers (K) Limited carried out a self-assessment excise tax of Kshs 529,278,680/-. However, instead of paying the self-assessed Excise Taxes, London Distillers wrote to the Cabinet Secretary of National Treasury and Planning on 15/09/2021 seeking abandonment of the self-assessed taxes. The Cabinet Secretary National Treasury and Planning vide a letter dated 20/01/2022 granted London Distillers Eighty percent (80%) abandonment of the excise taxes with advice to KRA. On reviewing the communication on abandonment from the Cabinet Secretary of National Treasury and Planning, the KRA noted that the same was issued contrary to Section 37 of the Tax Procedures Act and thus could not be complied with. Section 37 of the Tax Procedures Act provides;

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“… Section 37 of the Act (The Tax Procedures Act) only applies where the Commissioner himself determines that the grounds therein exist. These are that; it is impossible to recover the unpaid tax; there is undue difficulty or expense in recovery of unpaid tax or hardship or inequity ABOUT recovery of unpaid tax. In this regard, unless the Commissioner determines THE existence of these three conditions, there can be no application of that section.

…only the Commissioner can invoke that provision and no one else. It is once he invokes the provision that he refers the matter to the Cabinet Secretary for approval. In this regard, the process of abandonment starts with the Respondent (the Commissioner of KRA) and no one else.”

Dissatisfied with the decision by KRA not to implement the abandonment directive by the

Cabinet Secretary National Treasury and Planning, London Distillers moved to the High

Court seeking an Order of Mandamus to compel KRA to effect the abandonment of the

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Excise Tax of Kshs.   529,278,680/-. In affirming the decision by KRA not to implement the abandonment Directive by the Cabinet Secretary National Treasury and Planning, the High Court ruled that;

“The Respondent (KRA), being the master of taxes and tax laws, had a duty to evaluate the application for abandonment of taxes vis a vis the statutory requirements to be met before such approvals are issued. He similarly had a duty to confirm that the right procedure had been followed”, said the Commissioner for Legal Services & Board Coordination.

The nature of Excise Tax is such that it is borne by the consumer and as such it is not a tax due from the Excise goods manufacturer. Thus it is unconscionable for an excise goods manufacturer such as London Distillers to collect Excise Tax from consumers and instead of remitting it to KRA seek to appropriate the same by seeking an abandonment.

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