Transmara Sugar Company has won a reprieve in its pursuit of Sh1.8 billion tax relief from the Kenya Revenue Authority (KRA) regarding investments made at its Kilgoris factory since 2011.
The High Court has overturned a Tax Appeals Tribunal decision that had dismissed the case last year, ruling that the tribunal improperly declined jurisdiction over the matter.
The court ordered fresh reconsideration of the dispute, marking a significant development in the protracted legal battle.
At the centre of contention is Transmara's claim for tax relief tied to large-scale capital investments in its sugar processing operations.
The company maintains that under provisions of the Income Tax Act, it qualified for a 150 percent investment allowance applicable to capital expenditures exceeding Sh200 million outside major cities like Nairobi, Mombasa and Kisumu.
Between 2011 and 2018, Transmara Sugar undertook major expansion projects at its Kilgoris facility but faced persistent financial losses attributed to nationwide sugarcane shortages.
These losses became the subject of dispute when they exceeded the 10-year carry-forward limit stipulated under Section 15 of the Income Tax Act (now repealed).
The law permitted extensions beyond this period only through special approval by the National Treasury Cabinet Secretary, upon KRA's recommendation.
In July 2019, Transmara formally sought such an extension, but KRA's September 2022 response only partially approved the request.
The tax authority permitted Sh774.8 million of the claimed Sh1.8 billion losses to be carried forward without initially providing justification for the reduced amount. Dissatisfied with this determination, Transmara challenged KRA's calculations before the Tax Appeals Tribunal.
In November 2023, the tribunal dismissed the case, asserting that the original decision emanated from the National Treasury rather than KRA and therefore fell outside its jurisdiction.
This determination sparked Transmara's successful High Court appeal, where the trial judge scrutinised the chain of decision-making authority.
Court documents showed KRA's deputy commissioner issued the contested ruling on official letterhead, explicitly labeling it as the "Commissioner's ruling" and affixing the agency official stamp.
The High Court found these formal attributes legally significant, establishing clear attribution to KRA rather than the Treasury.
"Authorship and legal accountability must rest with the authority that formally communicates a decision," the judgment emphasised, warning against institutional attempts to obscure responsibility through administrative technicalities.
The court's thorough examination found no evidence supporting claims that former Treasury CS Ukur Yatani independently made the determination.
Judicial scrutiny extended to procedural safeguards under the Tax Procedures Act, which the court affirmed must protect taxpayers' right to challenge substantive rulings affecting their liabilities.
The High Court cautioned against allowing government entities to evade accountability by artificially attributing decisions to higher authorities without proper documentation.
The ruling highlighted how such practices could undermine constitutional guarantees of fair administrative action and transparency in public finance matters. The matter now returns to the tribunal for fresh consideration.
