The Supreme Court of Kenya declined Kenya Revenue Authority’s (KRA) request to have a rice importer pay extra millions for the error which originated from the taxman’s system.
KRA shot itself in the foot when it agreed that the error emanated from its human resource and failure in its technology system in a tax dispute that has seen a rice importer gets away with Ksh516 million unpaid tax.
According to KRA, the rice importer, Export Trading Company Ltd paid a preferential tax rate of 35 percent on imported rice instead of 75 percent when the system failed to identify the country of origin for the imported rice between 2007 and 2009.
The systems had recorded that the rice was imported from Pakistan, which enjoyed a lower rate compared to other countries instead of the actual countries the rice had come from.
It is after implementing the lower tax rate that KRA established that the rice imported from Burna, Vietnam and Thailand whose goods are given higher tax rates.
Following the error, KRA, therefore, wanted the court to force the importer to pay Ksh.378 million plus penalties and interest amounting to Ksh.138 million to recover the remaining taxes.
The five-judge bench said it is incomprehensible how a taxpayer is made to pay the consequences of KRA’s failure to put in place a correct rate in a system it had full control over.
“The appellant acted unfairly in demanding for the alleged short levied duty almost 4 years after the initial assessment and payment of the duty so assessed were irrational and did not accord the respondent its right to fair administrative action,” ruled judges led by Deputy Chief Justice Philomena Mwilu.
The judges pointed out that the importer had a legitimate expectation after the taxman failed to collect duty at the applicable rate having applied the 35 percent rate on the rice instead of 75 percent.