Mobile phone-based solar products provider M-Kopa has won a legal battle against the taxman in a precedent-setting case that is expected to define how the Kenya Revenue Authority (KRA) deals with vendors of similar gadgets.
M-Kopa had moved to court seeking orders barring the taxman from charging value-added tax (VAT) on solar-powered digital television sets, a product targeting low-income consumers mainly in remote rural areas off the national power grid.
The had accused the KRA of backtracking on an earlier decision to exempt the solar-powered digital television sets from the tax and asked the High Court to intervene and order the taxman to refund it Sh35.7 million it had paid so far.
Justice George Odunga noted that the decision on whether the tax is due or not is for Tax Appeal Tribunal to determine, and that his only concern was the process by which the decision was made.
The judge found that the KRA, after permitting M-Kopa to import the solar-powered television sets without imposing VAT in the past, could not turn around and impose the same and directed the KRA to refund Sh35.7 million it had collected from the firm.
“I therefore have no hesitation to find that the sudden arbitrary and unexplained about-turn made by the respondent with respect to importation of the solar-powered television amounted to thwarting of the applicant’s legitimate expectations that the said items were exempt from VAT,” Justice Odunga ruled.
He said the KRA’s claim that the goods always attracted tax had been contradicted by the evidence on record.
The judge ruled that while the KRA can correct any anomaly if detected, it should do so on sufficient rational grounds and communicate to the beneficiary, who must be given the opportunity to comment.
M-Kopa says that last year the KRA rendered a private ruling on an application the firm had made with regard to solar-powered TV sets, which stated that the items were exempt from VAT.
“The KRA has ignored its own binding private ruling, defied clear provisions of the VAT Act, 2013. There is therefore no doubt it will continue to illegally and unlawfully demand payment of VAT before releasing M-Kopa’s solar equipment to the detriment of M-Kopa and numerous users of solar home products, who have already ordered them and are awaiting delivery,” M-Kopa argued.
But the KRA insisted that the application for exception was rejected and M-Kopa paid for its consignment in protest.
The KRA said the Customs and Border Control department delivered the private ruling in favour of M-Kopa but some members of the department disagreed with the decision to exempt, giving KRA the authority to continue demanding VAT.
The KRA said the ruling was erroneous and that it has the mandate to correct the anomaly, noting that it didn’t raise any legitimate expectation.
The judge ruled that the private ruling was not withdrawn formally.