Africa-Press – Kenya. ax and audit consultancy firm PricewaterhouseCoopers has faulted the government for enforcing what it described as unclear and wrongly formulated VAT laws.
Commenting on a recent court ruling that rendered the 2017 VAT regulations null and void, PwC said tax laws should not create an illegality.
The High Court of Kenya, issued a judgement on January 31, 2022, in a case pitting KRA against W. E. C. Lines (K) Limited following a tax appeal.
The court declared the regulations null and void, after KRA appealed an earlier ruling by the Tax Appeals Tribunal, against WEC Lines (K) Limited on the procedural invalidity of the law.
The court established that the VAT Regulations, 2017 were never tabled before the National Assembly as required under Section 11 of the Statutory Instruments Act.
“Every Cabinet Secretary responsible for a regulation-making authority shall within seven sitting days after the publication of a statutory instrument, ensure that a copy of the statutory instrument is transmitted to the responsible Clerk for tabling before parliament,” states the Act.
WEC Kenya filed a VAT refund application worth Sh6.4m for the period February 2015 to January 2018, attributable to zero-rated exported services supplied to Dutch firm WEC BV.
The tribunal ordered KRA to pay the amount, but the taxman rejected the findings and appealed.
KRA argued that the services provided by the company were consumed locally given that it provides services to the clients of WEC BV located within the country.
It further stated that Regulation 13 of the VAT Regulations, 2017 which deals with exported goods and services, did not apply to the services supplied by the respondent.
According to KRA, the standard rate of tax, 16 per cent, applied on the supplies made by WEC Kenya as opposed to the zero rate.
WEC Kenya disagreed with KRA’s interpretation of the facts and proceeded to lodge an objection against the KRA’s disallowance of its VAT refund claim.
Subsequently, KRA rendered an objection decision on May 25, 2018 reaffirming its initial decision rejecting the refund.
The Tribunal 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 respondent.
The ruling was on the basis that there were no agreements between WEC Kenya and the Kenyan importers.
While upholding the tribunal’s ruling, the high court indicated that there was no dispute that the respondent was an agent of WEC BV.
As such, any contract made by WEC Kenya and third parties as contemplated by that 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, hence no services were offered from WEC Kenya to the importers.
PwC says the judgement underpins that the Privity of “contract is a sacrosanct legal doctrine”.
According to PwC, KRA has not always considered the doctrine when making decisions affecting taxpayers or when arguing its case before tribunals.
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