Huge blow to RVR as tribunal orders firm to pay Sh1.6b tax

Bernice Mbugua @BerniceMuhindi

Rift Valley Railways (RVR) Kenya Limited has suffered a blow after the Tax Appeal Tribunal upheld the decision of Kenya Revenue Authority (KRA) to demand taxes amounting to Sh1.6 billion.

Mohat Somane-led tribunal only reduced the taxes by Sh56,717,291 after the railway firm provided the requisite supporting documents regarding withholding tax liability of local and imported services.

KRA had carried out routine investigations and analysis of the RVR’s business for the years 2011 to 2016 in respect of Customs duty, Value Added Tax, Withholding Tax and Withholding VAT and issued an assessment notice for taxes amounting to Sh1,696,233,674

Railway company appealed against the said assessment, arguing that it was granted an exemption or a waiver from taxes by the Government of Kenya on the importation of locomotives to the country.

“Respondent erred in law and fact by concluding that the VAT remission on importation of 20 locomotives was obtained fraudulently and thus demanding for its payment despite having obtained VAT remission from the Ministry of Finance and National Treasury,” RVR had argued.

According to the company, its application for the exemption or waiver was done on its behalf by its agents, PriceWaterHouseCooper, in line with the provisions of Section 23 (3) A of the Value Added Tax Act, Cap 476 of the Laws of Kenya (now repealed).

Section provides that the Government of Kenya will grant a waiver for the importation of an investment of more than Sh1,000,000.

The firm was importing goods worth $203,000,000 (Sh2.03 billion).

Railways company submitted that the then Finance Minister granted an approval for the full amount.

However, there was an error of omission as the application approved by the Minister did not include the same items in the original list they submitted.

“Despite this error, the full amount was approved by the Minister.. the company is being reprimanded merely because of an internally generated error on the part of the Treasury,” they had argued.

Generated error

RVR contended that there was no part of the approval letter by the Ministry that rejected or refused to grant its application for waiver or exemption. 

The company further disputed levying tax on four provisional entries on the basis that the same had not been perfected.

According to the company, the perfection had not been completed since the exemption letter on the goods was yet to be validated by the National Treasury.

However, KRA, in response, argued that the exemption or the waiver that was granted to RVR was either not correctly obtained or that it was not applicable to the goods imported.

According to the taxman, Rift Valley Railways Limited  knew that the goods that were exempted from the original letter and the locomotives and the subsequent amendments were never part of the exemptions that were granted. 

On the issue of provisional entries, KRA argued that  Section 38 (2) of the East African Community Customs Management Act requires that within three months of lodging the provisional entry, the goods imported under a provisional entry  ought to be perfected on either payment of duty or on exemption of duty.

Tribunal, in its ruling, concurred  with KRA that the National Treasury did not grant exemption to the RVR to all the capital goods it intended to import.