The High Court has cleared Kenya Revenue Authority (KRA) to collect Sh1.69 billion from Rift Valley Railways (RVR), the concessionaire which managed the Kenya-Uganda railway service from 2006 to 2017.
RVR had appealed a decision by the Tax Appeals Tribunal which backed KRA’s tax assessment of Sh1.69 billion for the years 2011 to 2016.
The railway concessionaire’s contract, which was to run for 25 years, was terminated in 2017 for failure to meet operating targets including payment of concession fees.
The Nairobi High Court’s Commercial and Tax Division dismissed RVR’s case, saying the tribunal’s decision was correct.
The dispute revolved around the extent to which the National Treasury had waived taxes on capital goods imported by RVR.
The railway concessionaire had argued that locomotives qualified for the tax waivers but both the Tribunal and the court said RVR did not provide specific evidence to support this claim.
“In view of the foregoing, I do not find any error in the Tribunal’s decision as the appellant did not fulfill its obligation to provide the required proof,” Justice Alfred Mabeya said in the judgement issued on February 12, 2025.
“Accordingly, I find that the appeal before court is not meritorious. The same is dismissed with costs and the decision of the Tribunal dated 25/9/2020 is hereby upheld.”
The taxman had issued its assessment on September 13, 2017, with RVR objecting to the same on October 12, 2017.
KRA confirmed its assessment on December 11, 2017, resulting in the dispute which wound through the tribunal and the High Court.
“That the Tribunal erred in law in finding that the appellant was not given remission with respect to locomotives and was not given an exemption by relying on internal memos of the National Treasury,” RVR told the court.
“That the Tribunal erred in law in finding that the appellants VAT Remission of Sh403,322,260 was obtained fraudulently.”
The railway concessionaire argued that issuing tax exemption by one government agency and demanding the same by another government agency was against its legitimate expectation.
RVR added that the exemption letter dated August 15, 2011 granted remission for capital goods, including locomotives and train simulators whose exclusion was typographical error and did not invalidate the exemption.
KRA on the other hand said that the remission that was issued to RVR did not cover all of its imports including six locomotives, spare parts, diesel engines and ballast stimulating machines.
The court agreed with the taxman’s arguments. “A tax exemption carries significant implications and must be precise, as it is relied upon for compliance and enforcement,” the court said.
“If it was Treasury’s intention to include the omitted items, it should have explicitly done so. But it deliberately left them out. It cannot be inferred that it intended to include the same.”
