Lawyer’s blunder almost cost billions of KRA


Lawyer’s blunder almost cost billions of KRA

KRA headquarters at Times Tower in Nairobi. FILE PHOTO | NMG

An error in court by a lawyer representing the Kenya Revenue Authority (KRA) nearly cost the Inland Revenue billions of shillings in tax refund claims related to VAT regulations issued in 2017 which opened floodgates for taxpayers to request refunds.

The court last week came to KRA’s rescue when it overturned a January decision to overturn the VAT settlement after the taxman argued that his lawyer had falsely told the court that the settlement was not had ever been tabled in Parliament.

The commissioner stated that the VAT regulation had indeed been tabled in the National Assembly on May 10, 2017, as required by the Statutory Instruments Act.

Over the years, the tax authorities have struggled to pay VAT claims, largely due to insufficient liquidity provided by the Treasury and a lengthy audit. On average, the Inland Revenue receives claims of up to 30 billion shillings each financial year, mostly from manufacturers.

The regulations were published and placed greater emphasis on VAT refunds. A registrant, for example, will only be entitled to a rebate arising from zero-rated supplies for persons who impose taxes at the general rate and the zero rate.

The introduction of the regulation has also facilitated the taxation of telecommunications services given the dynamism of global trade in services.

An analysis by KPMG East Africa in 2017 pointed out that some of the provisions of the regulations were the elimination of the requirement to install and use tax records, further clarification on what constitutes an export of services , which if implemented will undermine Kenya’s position as a regional trading hub and requirement to charge VAT on imported services.

Under the regulations, a supply of telecommunications services is deemed to be made in Kenya if the supplier of the services is in Kenya at the time of the supply. Where an invoice does not provide for a separate VAT amount, the invoice amount shall be deemed to include VAT.

The regulations also required a registrant who is a retailer or who makes supplies inclusive of tax to non-registrants to prominently indicate on the invoice that the taxable supplies are made inclusive of tax and indicate whether the supply is taxable (including the rate ) or exempt.

In the January 22 ruling, Judge David Majanja said the regulations have no legal effect because they were never tabled in Parliament as required by the Statutory Instruments Act.

“In conclusion, I grant the request on the terms that the judgment of January 22, 2022 insofar as the decision that the VAT Regulations 2017 ceased to have any effect immediately on the 8th day after said regulations did not has not been tabled before the National Assembly and is hereby set aside,” the judge said.

The VAT Regulations were published in the Official Gazette on 30 March 2017, in accordance with the provisions of Section 67 of the VAT Act 2013 which gives the Secretary to the Treasury Cabinet the power to make regulations to give effect to the provision of the VAT Act.

Article 67 of the VAT Law requires the SC to submit the regulation to Parliament for approval before it can enter into force. The ruling gave taxpayers the chance to seek refunds and relief, but the KRA returned to court to seek a review, arguing it was factually wrong.

The judge said a party can request a review by pointing out an error in reading the record for discovering something new and material.

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