KRA wins Sh1.6bn tax row against Rift Valley Railways

The Kenya Revenue Authority (KRA) has won a tax battle with Rift Valley Railways (RVR) after a tribunal ordered the consortium to pay Sh1.6 billion.

The Tax Appeals Tribunal chaired by Mr Mahat Somane dismissed the petition by the concessionaire stating that some of the items imported by RVR, among them locomotives and diesel engines, were not tax exempt as alleged.

“This therefore leaves room for one reasonable conclusion; that the appellant (RVR) was not granted remission in respect of the locomotives and as such the taxes as assessed by the respondent (KRA) are properly due and payable by the appellant,” the Tribunal ruled.

KRA told the tribunal that it did an analysis of the company’s business between 2011 and 2016 in respect of customs duty, value added tax, withholding tax and withholding VAT. The taxman later in 2017 issued an assessment notice for taxes amounting to Sh1.69 billion.

The company, however disputed the claim saying it had obtained VAT remission from Ministry of Finance for some of the items it imported including train simulator system, tamping and ballast distributing machines, knock down kits and diesel engines.

Further, RVR said part of the tax demanded were transit material for goods destined for Uganda and KRA had misapplied the law by seeking to standard rate the revenue attributed to transportation of goods in transit.

But KRA argued that the company undervalued freight charges on six imported locomotives in December 2014.

The taxman further accused RVR of fraudulent remission of VAT on importation of tamping and ballast distributing machines, claiming it had obtained remission from the Ministry of Finance.

The tribunal ruled that the failure to withhold tax as required was a breach of the law on the part of the RVR, a move that was occasioned by its miscomprehension of the effects of the repeal of Section 25A of the VAT Act.

According to the tribunal, a perusal of the documents showed that some items the company claimed were exempted had been left out by the Treasury in a letter dated August 15, 2011.

“Accordingly, we find that the taxes assessed by the respondent in respect of the locomotive, spare parts, diesel engines, train simulator and the tamping machine are owing to the public purse and should be settled by the appellant,” the tribunal ruled.

The company, however got a reprieve after the tribunal quashed tax debt of Sh56.7 million after providing documents to support payment.

“The appellant’s withholding tax liability in respect of local and imported services should be reduced by Sh56,717,291 for which it has correctly supported,” the tribunal ruled.