The Kenya Revenue Authority (KRA) suffered another setback in its plans to tax plastic bottles for packaging non-alcoholic beverages after the Tax Appeal Tribunal (TAT) ruled that levies paid on tubes used to manufacture bottles should be refunded.
Ruling on a row between KRA and Kenafric Industries , the tribunal said packaging bottles imported by the consumer goods firm were raw materials and that the Sh10,284,385.59 excise duty paid for them should be offset against total tax payable on the final product.
“It is therefore the tribunal’s finding that the respondent (Commissioner of Domestic Taxes) erred in disallowing the appellant’s (Kenafric’s) claim of excise duty in respect of imported preforms for making plastic bottles for packaging its bottled products under Section 14 of the Excise Duty Act,” the TAT said an August 1 ruling.
This is a big win for many non-beverage makers using plastic bottles to package their products and who had also opposed deletion of Section 14 of the Excise Duty by the Finance Bill 2024, noting that it would raise their input costs.
In the shelved Finance Bill 2024, the government had proposed to delete Section 14 of the Excise Duty Act which provides for claims on excise duty paid on raw materials used in manufacturing excisable products.
KRA had argued that preforms are finished products, noting that other than modification, a raw material had to be part of the final product, in this case, the liquid content, and not only as a packaging material, to qualify as raw material.
However, the tribunal, chaired by Judge Robert Mutuma, agreed with Kenafric’s submission that the beverage could not be sold without the package.
“This position is supported by the provisions of Section 12 of the Excise Duty Act which specifies bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juice as a class of excisable goods that cannot be sold in their state other than accompanied by a type of packaging, in the appellant’s case being bottles,” said the tribunal.
The KRA argued that for packaging to be taken as a raw material in manufacturing Kenafric, which makes Fresh chewing gum, needed to demonstrate how the same is used in the value chain, other than for storage purposes before arriving at the final product.
