Poor Kenyans to enjoy cheap solar after taxman ordered to refund $357,000 it had unlawfully charged the product

Justice George Odunga found KRA guilty of breaching its own promise on value-added tax (VAT).
M-Kopa had moved to court seeking orders barring the taxman from charging value-added tax (VAT) on solar-powered digital television sets.

Kenya Revenue Authority (KRA) has been ordered by the high court to refund millions of shillings it had ‘unlawfully taxed mobile phone-based solar products firm, M-Kopa.

In a case likely to set precedence on how the taxman will tax solar products going forward, Justice George Odunga found KRA guilty of breaching its own promise not to charge value-added tax (VAT) on solar-powered digital television sets, products it had allowed M-Kopa to import without imposing VAT in the past.

The judge ruled that the KRA, after permitting M-Kopa to import the solar-powered television sets without imposing VAT in the past, could not turn around and impose the same and directed the KRA to refund Sh35.7 million it had collected from the firm.

“I therefore have no hesitation to find that the sudden arbitrary and unexplained about-turn made by the respondent with respect to importation of the solar-powered television amounted to thwarting of the applicant’s legitimate expectations that the said items were exempt from VAT,” Justice Odunga ruled.

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M-Kopa had moved to court seeking orders barring the taxman from charging value-added tax (VAT) on solar-powered digital television sets, a product targeting low-income consumers mainly in remote rural areas off the national power grid.

It had accused the KRA of backtracking on an earlier decision to exempt the solar-powered digital television sets from the tax and asked the High Court to intervene and order the taxman to refund it Sh35.7 million it had paid so far.

“The KRA has ignored its own binding private ruling, defied clear provisions of the VAT Act, 2013. There is therefore no doubt it will continue to illegally and unlawfully demand payment of VAT before releasing M-Kopa’s solar equipment to the detriment of M-Kopa and numerous users of solar home products, who have already ordered them and are awaiting delivery,” M-Kopa argued.

According to M-Kopa, KRA last year rendered a private ruling on an application the firm had made with regard to solar-powered TV sets, which stated that the items were exempt from VAT but KRA insisted that the application for exception was rejected and M-Kopa paid for its consignment in protest.

The judge however ruled that the private ruling was not withdrawn formally.

Justice Odunga said the KRA’s claim that the goods always attracted tax had been contradicted by the evidence on record.

The judge ruled that while the KRA can correct any anomaly if detected, it should do so on sufficient rational grounds and communicate to the beneficiary, who must be given the opportunity to comment.