Nairobi — The High Court has ruled that the Kenya Revenue Authority(KRA) should not be put in a position whereby it complies with ministerial directives on taxation which are illegal or unlawful.
In the case, London Distillers (K) Limited carried out a self-assessment excise tax of Sh529.2 million.
However, instead of paying the self-assessed Excise Taxes, London Distillers wrote to the Cabinet Secretary National Treasury and Planning on September 15 2021 seeking abandonment of the self-assessed taxes.
This saw the Treasury CS vide a letter dated January 20, grant London Distillers eighty per cent abandonment of the excise taxes with advise to KRA.
On reviewing the communication on abandonment from the Treasury CS, KRA noted that the same was issued contrary to the Section 37 of the Tax Procedures Act and thus could not be complied with.
"Section 37 of 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 the recovery of unpaid tax or hardship or inequity in relation to recovery of unpaid tax," KRA said.
In this regard, unless the Commissioner determines existence of these three conditions, there can be no application of that section.
It further states that 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."
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Dissatisfied with the decision by KRA not to implement the abandonment directive by Treasury CS, London Distillers moved to the High Court seeking an Order of Mandamus to compel KRA to effect the abandonment of the Excise Tax of Sh529.2million.
In affirming the decision by KRA not to implement the abandonment Directive by the Treasury CS, 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.
It also ruled that KRA had a duty to confirm that the right procedure had been followed.
KRA notes that 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," the taxman said.
