BY SAM ALFAN.
Kenya Revenue Authority (KRA) has asked the High Court to dismiss a petition filed by French retail chain Carrefour seeking to declare a section of the VAT Act unlawful.
In response to the case by the retail chain trading as Majid Al Futtaim Hypermarkets, KRA says the petition seeking to declare section 17(2)(b) of the VAT Act and the guidelines on the Value Added Tax Automatic Assessments unconstitutional is misplaced.
The retail chain has challenged the legislative authority of KRA to publish the guidelines saying they do not conform to the procedural requirements applicable to the Statutory Instruments Act.
KRA, however, says the guidelines were issued to facilitate the automated return verification module in the taxman’s iTax system after moving from the previous manual mode of verification.
“We further submit that the VAA system is in compliance with section 44 of the VAT Act and section 28 of the Tax procedures Act, noting that ICT and automation is a key enabler of the Big Four Agenda,”
Value Added Tax Automatic Assessments govern reconciliation of inconsistencies by the i-tax system between purchase invoices and sale invoices.
The French firm argues that the guidelines were never presented to Parliament for scrutiny and approval and there was no public participation, hence illegal.
But KRA says the VAA guidelines are not statutory instruments envisioned in the Act and therefore not subject to procedure required in the passing of statutory instruments.
“Simply put, it is an efficient system of flagging out simple errors for rectification rather than having parties go through the tedious and time-consuming process, when KRA rejects the entire claim,” KRA says in submissions filed in court.
The taxman says there is no additional form of assessment introduced by KRA, but a warning system that there is an error apparent on the return that will lead to its rejection by the Commissioner.
KRA and the French retail chain have been embroiled in a tax dispute of Sh443 million. The taxman says the chain’s tax liability has since reduced to 41.2 million
KRA had initially blamed the retail store for causing the delay for tax refund saying it has failed to furnish the required documents to facilitate the refund.
The French firm raised an objection in 2019 and supplied KRA with hundreds of invoices each month without getting a resolution even as the disputed tax claim continued to incur an additional Sh65 million interest.
KRA, he said, introduced the VAA module of iTax, which enables cross-validation of data from invoice declarations made in the buyer’s VAT returns, with those made in the corresponding seller’s returns.
The court heard that taxpayers were notified of the upcoming online enhancement that would enable cross matching of invoice declarations to mitigate against cases related to VAT fraud.
Carrefour served KRA with a notice of objection and the taxman asked the retail chain to provide documents such as purchase invoices, supplier statements and proof of payment to support the disallowed invoices, leading to the review.
The retailer says the taxman’s new automated system that compares VAT refunds between suppliers and buyers is picking up human errors and lump sum filling as tax leakages and raising disputed claims.
The new system has been criticized for blindly comparing invoices’ serial numbers resulting in mismatches between the invoices booked by the seller and the buyer due to the nature of the financial system used on both sides.
The Retailers Association of Kenya (Retrak) say the system is not suited to retailers especially small ones since they send their VAT records in bulk after selling to individuals who later make separate claims which means that records do not match.
