Drugs maker loses battle with KRA over Sh212m tax

One of East Africa’s biggest drugs maker, Pharmaceutical Manufacturing Company Limited, has lost its bid to stop the revenue authority from demanding over Sh200 million VAT from it.

The High Court has thrown out a suit lodged by the firm in which it was seeking to stop the Kenya Revenue Authority from collecting Sh212 million in value added tax (VAT) between January and 2013.

PMC however got some relief as Justice Isaac Lenaola said in his judgment that the amount demanded by KRA is too high, and that the two parties should meet to agree on a lower cost.

“The sum demanded of PMC is indeed high and no business entity, no matter how successful, will find it easy to pay. Let the parties negotiate a less stressful approach to the issue including seeking waivers and payments by installments,” said Justice Lenaola.

KRA had accused the pharmaceutical company of evading VAT payments, while PMC argued that it had been exempted from the same between 1988 and August 2013.

The VAT Act of 2013 had repealed provisions of the old laws which allowed exemptions such as those PMC was enjoying.

The pharmaceutical manufacturer however argued that it had a legitimate expectation that it would continue enjoying the same benefits from the taxman.

READ: Drug company sues State over new VAT law

Justice Lenaola said that KRA and the Commissioner of Customs had failed to sufficiently prove that PMC had deliberately failed to remit the sum to it. He however said the taxman was simply, in his view, implementing the VAT Act of 2013 in demanding VAT from the pharmaceutical company.

The discovery was made after the taxman carried out a desk audit on PMC for five years preceding 2013.

PMC’s Managing Director Kumar Shah had also asked the Court in his papers to determine whether the implementation of the new VAT laws was constitutional, something the judge said was out of his hands.

“Whether the policies pursued by the acts are proper or not is not a matter for the Court but one for the legislature,” said Justice Lenaola.

He however faulted KRA for its late discovery that PMC was not remitting VAT to it, but said it was not sufficient reason for him to grant the pharmaceutical company the orders it was seeking in its petition.

PMC, which supplies over 28 per cent of the medicine consumed in Kenya, had also asked the Court to allow it tax exemptions on the raw materials.