Automated Summary
Key Facts
Mawingu Networks Limited, a provider of internet data services, was assessed by the Commissioner of Domestic Taxes for under-declared Excise duty on infrastructure used in their services from October 2018 to October 2021. The Respondent raised a manual assessment of Kshs. 41,710,581 in December 2021, later confirmed via iTax in April 2022. The Appellant objected, arguing infrastructure (towers, fibre lines, customer equipment) is distinct from internet data services and thus not subject to Excise duty under Paragraph 1 of Part II of the First Schedule to the Excise Duty Act 2015. The Tribunal ultimately ruled in favor of the Appellant, finding infrastructure charges separate from excisable internet services.
Tax Type
Excise Duty on internet service infrastructure
Issues
Whether the Appellant's infrastructure used in the provision of internet data services is subject to Excise Duty
Tax Years
- 2021
- 2020
- 2018
- 2019
Holdings
The Tribunal found that the infrastructure used by the Appellant in its invoices is distinct from the provision of internet data services and is not subject to excise duty. Infrastructure and internet data services were determined to be separate components, with excise duty applicable only to the service component.
Remedies
- The Tribunal allowed the Appellant's appeal, granting relief on the grounds that infrastructure fees are not subject to Excise Duty.
- No orders were made as to the costs of the appeal, indicating that the Tribunal did not award costs to either party.
- The Tribunal set aside the Respondent's objection decision dated 29th August 2022, which had rejected the Appellant's objection to the Excise Duty assessment.
- The Tribunal ordered the immediate refund of any monies paid to the Respondent in respect of the objection decision, including overpaid taxes amounting to Kshs. 21,000,000.00.
Tax Issue Category
Gaar / Anti-Avoidance
Monetary Damages
21000000.00
Legal Principles
- The Tribunal applied the Literal Rule to interpret Paragraph 1 of Part II of the First Schedule to the Excise Duty Act, concluding that the plain wording does not include infrastructure within the definition of 'internet data services.'
- The Tribunal relied on the principle of Contra Proferentem, holding that ambiguous tax provisions must be interpreted in favor of the taxpayer. This supported the Appellant's argument that infrastructure charges were not subject to Excise Duty.
- The Respondent failed to discharge the burden of proof under Section 56(1) of the Tax Procedures Act to demonstrate that the Appellant's infrastructure charges were part of excisable services, leading the Tribunal to invalidate the assessment.
Disputed Tax Amount
41710581.35
Precedent Name
- Republic vs. Kenya Revenue Authority ex parte Bata Shoe Company (Kenya) Limited
- Kenya Bankers Association vs. Kenya Revenue Authority
- PZ Cussons East Africa Limited vs. Kenya Revenue Authority
- Keroche Industries Limited vs. Kenya Revenue Authority
- Republic vs. Commissioner of Domestic Taxes (Large Taxpayers Office) & another Ex Parte British American Tobacco Kenya Limited
- Mount Kenya Bottlers Ltd & 3 Others vs. Attorney General & 3 Others
- Afya X-Ray Centre vs. Commissioner of Domestic Taxes
Cited Statute
- Tax Procedures Act, Section 59
- Excise Duty Act 2015, Part II, Paragraph 1 of the First Schedule
- Excise Duty Act 2015, Section 42
- Tax Procedures Act, Section 56(1)
- Tax Procedures Act, Section 24 (2)
- Tax Procedures Act, Section 85
- Constitution of Kenya (2010), Article 210
Judge Name
- Mutiso Makau
- Robert Mutuma
- Boniface K. Terer
- Elishah N. Njeru
- Dr. Walter Ongeti
Passage Text
- "Telephone and internet data services shall be charged excise duty at a rate of twenty percent of their excisable value."
- The Tribunal further draws another analogy of transport services provided by a transport company. Since a motor vehicle is used to provide transport services to the company's clientele, the Respondent cannot purport to charge excise duty on the motor vehicle using the argument that the two cannot be distinguished from each other.
- Infrastructure used to provide the internet data services are very distinct from the internet data services provided by the Appellant. Thus the Tribunal finds that the Appellant's has satisfactorily proven that its charge for infrastructure is distinct and separate from the provision of internet data service.