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November 8, 2022 High Court of Kenya will not address grounds for objection not originally presented at the appellate level
Executive summary On 7 October 2022, the High Court of Kenya ruled in favor of the Kenya Revenue Authority (KRA or the Respondent) dismissing an application by a taxpayer (the Appellant) on the right to claim input Value Added Tax (VAT) worth approx. KES249 million (m). This was based on the fact that the Appellant had not asserted the key grounds of appeal that it presented at the High Court of Kenya at the start of the appeal process at the Tax Appeals Tribunal. Detailed discussion Background The Appellant is a subsidiary of a company that is based in India and was incorporated in Kenya in 2015. The Appellant engages in manufacturing and supply of medical, surgical and laboratory equipment. In 2015, the Appellant entered into a lease agreement with the Government of Kenya via the Ministry of Health (MOH) to provide medical equipment services (MES). Notably, the Appellant had not registered for the VAT obligation until October 2017 on the grounds that there was lack of clarity on whether the MES contract was subject to VAT. However, as soon as this issue was clarified the Appellant attempted to register but the online registration system failed to add the additional obligation. The KRA then, compelled registration of the Appellant on 9 October 2017 and backdated the registration to 31 May 2015 in line with the period that the Appellant met the registration threshold. Later, the Respondent undertook a tax audit on the Appellant and disallowed input VAT of approx. KES249m. The Respondent then issued a tax demand inclusive of penalties and interest of approx. KES464m. In 2018, the Appellant dissatisfied with the assessment appealed to the TAT. The TAT in April 2021 ruled in favor of the KRA and informing of the Appellants’ decision to file an appeal with the High Court of Kenya. The Appellant’s position
The Respondent’s position
Analysis and determination of the High Court of Kenya The High Court highlighted two matters for analysis and determination of whether:
After evaluating submissions by both parties, the High Court addressed the following: Whether input VAT claim for May 2015 to January 2017 was time barred The Court found:
Whether the retrospective registration was constitutional
Implications The High Court held that that the Court’s duty was to rule whether the decision of the TAT was justified. It could not address a new matter that was not presented at the TAT. Accordingly, the Court declined and dismissed the application by the Applicant. Based on the Court’s ruling, taxpayers should ensure that they properly raise all pertinent matters at the onset of the objection and appeal process. _________________________________________ 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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