WATER FIRM ORDERED TO PAY KRA SH155 MILLION.

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BY SAM ALFAN.

A water bottling company will have to pay Kenya Revenue Authority taxes amounting to Sh155.4 million after the Tax Appeal Tribunal dismissed its appeal.

Highlands Mineral Water Company Limited had challenged a tax demand by KRA, plus interests and penalties.

The dispute emanated from the KRA’s decision to disallow the firm’s input VAT claims on self-assessment VAT returns submitted late on account of being time barred.

In the appeal, the Company faulted KRA’s position that input tax is only deductible when VAT returns are filed in accordance with Section 17 (2) of the VAT Act.

“The respondent erred in law by allowing its input tax for the years of income of 2014-2017 due to late filing of VAT returns and therefore resulting in a tax liability of Sh155,402,525 inclusive of interests and penalties,” the company submitted.

According to the water company, KRA misinterpreted the Act to suggest that where the VAT returns are filed late, then the firm is only entitled to input tax arising from six months prior the date of submission of the late return.

“That the Respondent erred in law by misinterpreting Section 17(2) of the Act to imply that a VAT return which is submitted late should not reflect the actual transactions that would have been reflected had the return been submitted on time,” it had argued.

KRA’ argued in response that Section 44 (1) of the VAT Act requires every registered person to submit a return in the prescribed form and manner in respect of each tax period not later than the 20th day after the end of that period.

The Tribunal reaffirmed KRA’s position stating that it was not in dispute that the only avenue for reclaiming deduction of input is through filing of a VAT return.

The tribunal noted that Section 44 (1) of the VAT Act requires that the VAT return in respect of each tax period should be filed by a registered taxpayer not later than the 20th day after the end of that period, unless a taxpayer has sought and obtained an approval by the Commissioner for extension of time.

“It would follow that where a taxpayer has filed its VAT returns late, then input VAT will only be allowed for deductibility to the extent that it is within six months at the time of filing the return. The six -month period limit would only cease to apply where the taxpayer had sought and obtained the Commoner’s approval to submit a late return,” it ruled.

The tribunal said the wording of Section 17(2) was clear and unambiguous and cannot be interpreted to have any other meaning.

“The Tribunal therefore disagrees with the Appellant’s contention that six months’ cut-off period should apply to period VAT return relates to irrespective of the date of submission of the return,” TAT ruled.

The members further said should the firm’s interpretation be allowed, it would create a dangerous precedent where taxpayers would no longer see the need to adhere to timelines.

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