Tax laws must be validly enacted and enforced
By Soko Directory Team / Posted on February 19, 2022 | 10:28
The appeal related to a case in which the KRA was ordered by the Tax Appeal Tribunal to pay WEC Kenya Kshs 6.4 million in VAT refunds.
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KRA further argued that Section 13 of the VAT Regulations 2017, which deals with exported goods and services, did not apply to services provided by WEC Kenya.
Financial services consultancy Pricewaterhouse Coopers (PwC) says the recent High Court ruling which rendered the Value Added Tax Regulations 2017 void and affirmed that the tax laws must be validly enacted and enforced.
In a tax alert dated February 2022, PwC states: “Tax law must be validly enacted and enforced. Non-compliance with what creates an illegality. Where tax laws are prescriptive, there is no room for intent or inference.
In its judgment delivered on January 31, 2022, in a case between KRA, which was appealing an earlier decision of the Tax Appeal Tribunal, against WEC Lines (K) Limited (WEC Kenya), the tribunal declared the regulations “void and void” due to procedural nullity in their enactment.
The court found that the VAT Regulations 2017 had never been tabled in the National Assembly, as required by the Statutory Instruments Act 2013, in section 11, which states that “each secretary of the Cabinet responsible for a regulatory authority must, within seven (7) sitting days after the publication of a regulatory text, ensure that a copy of the regulatory text is forwarded to the responsible clerk for tabling in parliament.
The appeal related to a case in which the KRA was ordered by the Tax Appeal Tribunal to pay WEC Kenya Kshs 6.4 million in VAT refunds. The Kenyan limited liability company is the sole shipping agent of WEC Lines BV (WEC BV), a Dutch company specializing in the maritime transport of goods. WEC Kenya represents WEC BV in transactions related to its shipping activities in Kenya.
WEC Kenya has applied for a VAT refund for the period February 2015 to January 2018 attributable to zero-rated exported services provided to WEC BV. KRA dismissed the defendant’s claim on April 18, 2018, citing the following on the grounds that the services provided by WEC Kenya were consumed in Kenya, as the company provides services to WEC BV customers located in Kenya.
KRA further argued that Section 13 of the VAT Regulations 2017, which deals with exported goods and services, did not apply to services provided by WEC Kenya. The KRA argued that the standard tax rate, 16%, applied to supplies made by WEC Kenya, as opposed to zero rates.
The court ruled that, as defined by the contract between WEC Kenya and WEC BV, the Dutch company was the sole consumer of the services provided by the defendant, on the grounds that there were no agreements between WEC Kenya and Kenyan importers.
While upholding the court’s decision, the High Court noted that it was undisputed that the respondent was an agent of WEC BV. As such, any contract entered into by WEC Kenya and third parties as contemplated by this agency relationship is, in fact, a contract between that third party and WEC BV. Therefore, there was no exclusive contract to speak of between the local importers of goods and WEC Kenya. As such, no service was offered by WEC Kenya to importers.
PwC further asserts that the judgment underpinning the confidentiality of the “contract is a sacrosanct legal doctrine which has not always been taken into account by the KRA when making decisions affecting taxpayers or when arguing its case in various courts.
In its interpretation of the decision, PwC asserts that “neither the KRA nor any third party has the power to rewrite contracts between freely contracting parties. It therefore follows that the parties are free to constitute the rights and obligations in the wording of their contracts.