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March 1, 2022

Kenya High Court invalidates VAT Regulations, 2017 and declares maritime agency services provided to nonresident shippers should qualify as exported services

Executive summary

The Kenya High Court (the High Court), in a case (ruling delivered on 31 January 2022) between the Commissioner of Domestic Taxes (the Commissioner or the Appellant) vs W. E. C. Lines (K) Limited (WEC (K) Ltd or the Respondent) declared Kenya’s Value Added Tax (VAT) Regulations, 2017 null and void and held that maritime agency services provided to nonresident shippers should qualify as exported services for VAT purposes.

This Alert summarizes the assertions of the Appellant and Respondent and the High Court’s decision.

Detailed discussion


The Respondent is a Kenyan limited liability company and the exclusive local and shipping agent of WEC Lines BV (WEC BV), a company incorporated in the Netherlands. WEC (K) Ltd represents WEC BV locally pursuant to an agency agreement. WEC BV is engaged in the maritime transportation of goods.

WEC (K) Limited treated the agency services it provided to WEC BV as exported taxable services and as such applied for a VAT refund of excess input tax (because of zero -rating of exported services) from the Kenya Revenue Authority (the KRA or the Appellant). However, the KRA rejected the VAT refund application on grounds that the services were not exported. The Company objected and the KRA reconfirmed its position that WEC (K) Ltd was not entitled to the VAT refunds. WEC (K) Ltd then submitted an appeal at the Tax Appeals Tribunal (TAT) whose ruling was delivered in favor of the Company. In light of the Tribunal’s decision, the KRA challenged its decision at the High Court.

Appellant’s position

The Appellant (KRA) submitted that the Respondent’s (WEC (K) Ltd) services which included, among others, the solicitation of business, customer service, booking, documentation, quotation of rates, collection, administration and the forwarding of claims were offered to third parties, customers and/or importers based in Kenya and that these did not qualify as exported services for VAT purposes. The KRA therefore asserted that WEC (K) Ltd was not entitled to a refund of excess input tax. The KRA also contended that only services provided to the vessels, and not the owners, qualified for zero-rating.

The Appellant relied on Regulation 13 of the VAT Regulations, 2017 in rejecting the VAT refund claims by the WEC (K) Ltd. The Appellant also asserted that the VAT Regulations, 2017 and the main VAT Act, 2013 complimented each other and that the services rendered by the appellant were used and consumed in Kenya.

Regarding applicability of the VAT Regulations, 2017, the Appellant admitted that the VAT Regulations, 2017 were never tabled before the National Assembly for approval. However, the Appellant contended that although they were not tabled in the National Assembly, they had not been found to lack procedure nor illegal and as such they were still operational and valid.

Respondent’s position

Summarily, the Respondent, asserted its case as follows:

  • Based upon the agency agreement between it and WEC Lines BV, it provided agency services for its principal which were exported services and therefore zero-rated for VAT purposes.

  • Based on the zero rating, the Respondent was entitled to a refund of excess input VAT and that the VAT Regulations, 2017 which the Appellant relied on were null and void to the extent that they were in conflict with the VAT Act, 2013.

  • The Respondent also challenged the validity of the VAT Regulations as they failed to meet the procedural legislative requirements as set forth by the Statutory Instruments Act. Pursuant to section 11(4) of the Statutory Instruments Act, 2013 “…If a copy of a statutory instrument that is required to be laid before parliament is not so laid in accordance with this section, the statutory instrument shall cease to have effect immediately after the last day for it to be so laid but without prejudice to any act done under the statutory instrument before it became void…”

Issues addressed by the High Court

The High Court had the following questions to answer in determining the case:

  • Whether the VAT Regulations, 2017 were applicable and if they conflicted with the VAT Act, 2013.

  • Whether the services offered by the Respondent were used and consumed in Kenya and as such exported.

  • Whether these services were being offered to third parties, customers and/or importers as the consumers.

Determination by the High Court

The High Court held that:

  • Based on the agency contract between the Respondent and WEC Lines BV, that there was no privity of contract between the Respondent and the importers of cargo who contract with its principal. The conclusion was that the ultimate consumer of the Respondent’s marketing, customer care and post landing services was its principal WEC BV, in the Netherlands. Therefore, WEC (K) Ltd’s services qualified as exported and therefore were zero-rated for VAT purposes.

  • That the VAT Regulations, 2017 were invalid as they were issued without observation of the set procedure. The Cabinet Secretary -National Treasury failed to table the Regulations before the National Assembly contrary to the requirement of Section 11(4) of the Statutory Instruments Act, 2013.


VAT Regulations, 2017, according to the High Court, are now invalid and they should not be applicable in making or arriving at taxation decisions by the Commissioner or the taxpayers.

With the invalidation of the VAT Regulations, 2017 it is unclear whether the VAT Regulations under the repealed VAT Act (cap 486) would now be applicable pursuant to the transition clause under the VAT Act 2013 which required that the Regulations under the previous VAT regime continue to apply until new regulations were enacted.


For additional information with respect to this Alert, please contact the following:

Ernst & Young (Kenya), Nairobi

Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Ernst & Young LLP (United States), Pan African Tax Desk, New York


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