The High Court on 31 January 2022 delivered judgment in Income Tax Appeal No E84 of 2020: Commissioner of Domestic Taxes v. W. E. C. Lines (K) Limited, dismissing the Kenya Revenue Authority’s appeal and also invalidating the Value Added Tax Regulations, 2017 (VAT Regulations, 2017). The court upheld the Tax Appeals Tribunal's decision that agency services provided by a resident shipping agent to a principal non-resident shipping company were exported services and were zero-rated during the period February 2015 to January 2018. 

The Commissioner applied to review the judgment. The Commissioner produced evidence confirming that the VAT Regulations, 2017 had been tabled before the National Assembly on 10 May 2017 as required and under the Statutory Instruments Act, 2013. The Commissioner’s position was that its counsel had inadvertently misrepresented facts in court by stating that the VAT Regulations, 2017 had never been tabled before the National Assembly and as a result its appeal was dismissed. 

The taxpayer’s position was that the Commissioner’s application did not meet the test for review and that the exercise was not going to change the outcome of the judgment delivered on 31 January 2022. 

The High Court delivered a ruling on 14 July 2022 allowing the application for review of the judgment delivered on 31 January 2022 stating: 

• the legality of the VAT Regulations, 2017 is a matter that transcends the rights and interests of the parties to the dispute, namely Income Tax Appeal No E84 of 2020: Commissioner of Domestic Taxes v. W. E. C. Lines (K) Limited;
• the validity of the VAT Regulations, 2017 is a matter that affects the public at large and that in the current case governs the administration of the VAT Act, 2013;
• the Commissioner produced evidence which shows that the VAT Regulations, 2017 were tabled before the National Assembly on 10 May 2017. The VAT Regulations, 2017 were valid and there was no basis to hold that the Statutory Instruments Act, 2013 was not complied with;
• had a contrary position been presented before the Tax Appeals Tribunal and the High Court about the tabling of the VAT Regulations, the declaration that the VAT Regulations are invalid would not have been made;
• the application by the Commissioner to review the judgment is allowed to the extent that the decision holding that the VAT Regulations, 2017 ceased to have any effect immediately on the eighth day after the said Regulations were not tabled before the National Assembly is hereby set aside. For the avoidance of doubt, VAT Regulations are valid and have the force of the law; and
• the review decision does not affect the fact that KRA’s appeal was dismissed and the decision of the Tax Appeals Tribunal affirmed. 

In summary, the court has reversed its order in the judgment delivered on 31 January 2022 that the VAT Regulations, 2017 ceased to have any effect immediately on the eighth day after the said Regulations were not tabled before the National Assembly. The VAT Regulations, 2017 were tabled before the National Assembly and are valid and have the force of law. The court’s determination on the VAT implications of the services provided by the taxpayer to its non-resident Principal remain unchanged. 

What does the ruling mean for you? 

The effect of the ruling is that the VAT Regulations, 2017 are in force and applicable. However, the ruling does not affect the outcome of the judgment delivered on 31 January 2022 to the effect that the taxpayer in this case made zero-rated supplies and was entitled to VAT refunds due to it.

In addition, the ruling does not affect the Tax Appeals Tribunal's finding that there was inconsistency between the provisions of the VAT Act, 2013 and the VAT Regulations, 2017 as regards exported services with the provisions of the VAT Act, 2013 taking precedence. The Commissioner did not appeal this finding of the Tax Appeals Tribunal. 

The content of the above publication is for general information only and is not intended to be legal advice. Information contained in this publication should not be acted upon in any specific situation without appropriate legal advice.

For more information on this decision or any other tax matters, kindly get in touch with the Key Contacts: Kimani Kiragu SC, Andrew Warambo and James Kimani