The Tax Appeals Tribunal (TAT) has refused to order the Kenya Revenue Authority (KRA) to refund a financial and investment company Sh296 million that was allegedly paid in error as taxes after the sale of a building to Jomo Kenyatta University of Agriculture and Technology (JKUAT).
The company, ICEA Life Assurance Ltd, wanted the tribunal to rule that the Commissioner of Domestic Taxes erred by rejecting its application for a refund of the amount as VAT paid in error upon transfer of the commercial building formerly known as ICEA Building on Nairobi’s Kenyatta Avenue. The building is now named JKUAT Towers.
According to the company, the taxes were erroneously paid to KRA. It said the application for refund was based on the Commissioner’s advice to the company that VAT was not payable on the transfer of the commercial building to JKUAT and that the transaction was VAT zero-rated.
The financial services provider company sought a declaration that it was wrong for the Commissioner to disown his advice dated June 24, 2020, that the sale of the property was zero-rated.
It said the Commissioner also contradicted his private ruling issued on September 4, 2017, where it was found that there was no tax payable from the transaction.
But the tribunal chaired by Eric Wafula struck out the appeal filed by the financial services firm after finding that the dispute had been litigated and settled in a separate dispute.
It upheld KRA’s argument that the appeal was a replica of the previous case since the parties were the same and the issue in dispute was the same.
“This appeal to that extent offends the doctrine of res judicata and is unsustainable in law. The upshot of the foregoing is that this appeal is incompetent and unsustainable in law.
The appeal be and is hereby struck out,” said the tribunal.
It also found that the issue of the VAT payable had been addressed through Alternative Dispute Resolution negotiations between KRA and the company.
One of the issues discussed at the ADR forum was the VAT assessment on the sale of the property to JKUAT. The taxman asserted that VAT of Sh296 million was due and payable since the transaction did not qualify as a transfer of a business, hence the deal was not VAT zero-rated.
The company sought the tribunal’s intervention for a refund after KRA retracted from its earlier position that the transaction was zero-rated.
In the retraction, KRA stated that the transaction was not a transfer of a business, hence was subject to VAT at the standard rate of 16 per cent and the amount of Sh296 million paid by the company was not tax paid in error.
The dispute started in September 2018 after the Commissioner issued a tax assessment to the company demanding a total of Sh828,857,568 in form of taxes.
The demand arose from the Commissioners’ review of the company’s operations for the period January 2014 to December 2017 covering Withholding Tax (WHT), Pay as You Earn (PAYE), and Value Added Tax (VAT).
In the review, the commissioner found that the company had charged WHT tax at the rate of 10 per cent on Tied Life Agents’ earnings instead of charging PAYE. Another finding was that the company had sold a building to JKUAT but failed to account for VAT on the sale of the property.
The company objected and the Commissioner reviewed the amount downwards to Sh696 million in December 2018.
Feeling dissatisfied with the objection decision, the company filed an appeal at the tribunal and subsequently applied for the resolution of the dispute under the KRA’s Alternative Dispute Resolution framework.
The parties signed an ADR Agreement in September 2019 and the company proceeded to pay the agreed principal tax liability.
Before the tax dispute and settlement, JKUAT had requested a private ruling on the transaction and the Commissioner had issued a ruling dated September 4, 2017, stating that the transaction qualified as a transfer of a business and that the same was VAT zero rate.
On June 24, 2020, the Commissioner wrote to the company, once again giving guidance on the tax treatment of the transaction and re-affirmed its position as per the ruling to JKUAT that the transaction qualified as a transfer of a business as a going concern hence VAT zero-rated.
At the point of receipt of the letter, the company had made payments in settlement of the tax VAT liability as per the ADR Agreement. The company, therefore, on August 26, 2020, wrote to the Commissioner asking that the Sh296 million paid as VAT on the transaction be treated as taxes paid in error and refunded to it.
