Automated Summary
Key Facts
Musoni Microfinance Limited, a Kenyan financial services provider, was issued a tax assessment by the Commissioner of Domestic Taxes totaling Kshs 149,184,175.00 (VAT, Withholding Tax, and Excise Duty) in December 2022. The Appellant objected to the assessment in December 2022, and the Respondent partially upheld it in February 2023, reducing the amount to Ksh 146,208,564. Musoni filed an appeal in March 2023 challenging the tax assessment's legal basis and methodology.
Tax Type
Value Added Tax (VAT), Withholding Tax (WHT), and Excise Duty
Issues
- Whether the Respondent erred in confirming the assessment for VAT.
- Whether the Respondent erred in confirming the assessment of Excise Duty on digital lending.
- Whether the Respondent erred in its assessment for WHT.
Tax Years
- 2018
- 2022
- 2019
- 2020
- 2021
Holdings
- The Tribunal found that the Respondent did not err in confirming the VAT assessment, as the VAT Act requires any person receiving imported taxable services to account for VAT, regardless of registration status. The Appellant's argument that it was not required to account for VAT as an unregistered entity was rejected, citing legal precedents and statutory provisions.
- The Tribunal determined that the Respondent did not err in its Withholding Tax (WHT) assessment. It ruled that costs incurred on foreign consultants' transportation and accommodation were part of their remuneration, making them subject to WHT. The Appellant's challenge to the processing fee WHT was also dismissed for lack of evidence.
- Regarding Excise Duty on digital lending, the Tribunal concluded that the Respondent correctly classified the Appellant as a digital lender under Legal Notice 46 and the Excise Duty Act. The Appellant's claim of not being a digital lender was dismissed due to insufficient evidence, and the Tribunal emphasized the burden of proof on the taxpayer.
Remedies
- The Tribunal dismissed the Appellant's appeal, upheld the Respondent's objection decision, and ordered each party to bear their own costs.
- The Tribunal upheld the Respondent's objection decision dated 24th February 2023, confirming the tax assessments for VAT, Excise Duty, and Withholding Tax.
- The Tribunal ordered that each party bear their own costs associated with the appeal proceedings.
Tax Issue Category
- Other
- Withholding-Tax Characterisation
Legal Principles
- The Tribunal applied the presumption of correctness in favor of the Commissioner's tax assessments. This presumption, as outlined in Commissioner of Domestic Taxes v Trical and Hard Limited, requires taxpayers to present competent evidence to challenge the validity of assessments.
- The Tribunal held that the Appellant failed to discharge the burden of proof required to demonstrate that the Respondent's tax assessments were incorrect. Under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, the Appellant had the responsibility to prove the tax decision was erroneous, which it did not adequately fulfill.
Disputed Tax Amount
146208564.00
Precedent Name
- Republic v Kenya Revenue Authority Exparte Bata Shoe Company (Kenya) Limited
- Trust Bank Limited V Paramount Universal Bank Limited & 2 others
Cited Statute
- Tax Appeals Tribunal Act
- VAT Act, 2013
- Tax Procedures Act
- Central Bank of Kenya (Digital Credit Providers) Regulations, 2022
- Income Tax Act, CAP 470
- Excise Duty Act, 2015
Judge Name
- Dr. Rodney O. Oluoch
- Cynthia B. Mayaka
- Eric Nyongesa Wafula
- Dr. Timothy B. Vikiru
- Abraham K. Kiprotich
Passage Text
- The Tribunal reiterates the finding in Republic v Kenya Revenue Authority Exparte Bata Shoe Company (Kenya) Limited [2014] eKLR, where the Superior Court stated that: 'Payment of tax is an obligation imposed by the law. It is not a voluntary activity. That being the case, a taxpayer is not obliged to pay a single coin more than is due to the taxman. The taxman on the other hand is entitled to collect up to the last coin that is due from a taxpayer.'
- The Tribunal notes that although the Appellant sought to rely on the definition of a registered person under Section 2 of the VAT Act, the Act at Section 5(6) as amended by the Finance Act 2019 provides that 'Tax on supply of imported taxable services shall be a liability of any person receiving the supply and, subject to the provisions of this Act relating to accounting and payment, shall become due at the time of the supply.'
- The Tribunal accordingly holds and concludes that the Appellant did not discharge the burden of proof placed on it by law to demonstrate that it wasn't a digital lender and therefore the Respondent did not err in confirming assessment of Excise duty on digital lending.