A slip-up in court by a lawyer representing the Kenya Revenue Authority (KRA) nearly cost the taxman billions of shillings in tax refund claims tied to VAT Regulations published in 2017 that had opened floodgates for taxpayers to seek reimbursements.
Last week, the court came to the rescue of KRA when it reversed the January decision to nullify the VAT Regulations after the taxman pleaded saying its advocate misrepresented to the court that the regulations were never tabled before Parliament.
The commissioner said the VAT Regulations were indeed tabled before the National Assembly on May 10, 2017, as required by Statutory Instruments Act.
The taxman has over the years struggled to pay VAT claims, largely due to inadequate cash provided by the Treasury and a lengthy verification. On average, the taxman receives claims of up to Sh30 billion every financial year, mainly from manufacturers.
The regulations were published and gave more emphasis on refund of VAT. A registered person, for example, will only be entitled to a refund arising from zero-rated supplies for persons making taxes at the general rate and zero rate.
The introduction of the regulation also aided the taxation of telecommunication services given the dynamism of global trade in services.
An analysis by KPMG East Africa in 2017 pointed out that some of the provisions of the regulations were the elimination of the requirement to install and use tax registers, a new clarification on what constitutes an export of services, which if implemented will undermine Kenya’s position as a regional business hub, and invoicing requirement for VAT on imported services.
Under the regulation, a supply of telecoms services shall be considered as made in Kenya if the initiator of the services is in Kenya at the time of supply. Where an invoice does not provide for a separate VAT amount, the invoice amount will be deemed to be inclusive of VAT.
The regulation also required a registered person who is a retailer or who makes tax-inclusive supplies to unregistered persons should state prominently on invoice that the taxable supplies are made inclusive of tax, and disclose whether supply is taxable (including the rate) or exempt.
In the decision made on January 22, Justice David Majanja said the Regulations had no legal effect because they were never tabled in Parliament as required by Statutory Instruments Act.
“In conclusion, I allow the application on terms that the judgment dated 22nd January 2022 to the extent that the decision that the VAT Regulations, 2017 ceased to have any effect immediately on 8th day after the said regulations were not tabled before National Assembly and is hereby set aside,” the judge said.
The VAT Regulations were gazetted on March 30, 2017, pursuant to provisions of Section 67 of the VAT Act, 2013 that gives Treasury Cabinet Secretary the power to make regulations to give effect to the provision of the VAT Act.
Section 67 of the VAT Act requires the CS to table the Regulations before Parliament for approval before they can take effect. The decision handed taxpayers an avenue to pursue refunds and reliefs but KRA moved back to court seeking a review, arguing it was factually wrong.
The judge said a party can seek a review by pointing out an error on the face of the record of discovery of new and important matter.
