How KRA's blunder gifted Export Trading Company Sh500 million

A blunder by the Kenya Revenue Authority granted a rice importer in Kenya Sh500 million in unpaid taxes after the supreme court ruled that the taxman cannot claim the amount.

KRA had sought to recover Sh378 million in taxes and Sh138 million in interest from Export Trading Company after its systems failed to impose the requisite duty on the importer between 2007 and 2009.

However, the Supreme Court ruled that it would be unfair to punish the taxpayer for errors made by the taxman.

Supreme Court of Kenya Supreme Court of Kenya Pulse Live Kenya

“We reiterate the findings by the High Court and Court of Appeal and hold that the appellant acted unfairly in demanding for the alleged short levied duty almost 4 years after the initial assessment and payment of the duty so assessed were irrational and did not accord the respondent its right to fair administrative action,” the court ruled.

The KRA Tradex Simba System charged the importer a rate of 35% on imported rice instead of 75% resulting in hundreds of millions in uncollected taxes.

How did the blunder happen?

The East African Community, on 2005, passed the Common External Tariff, which set the rate for imports of rice from outside East Africa to 75%.

KRA Head offices at Times Tower KRA Head offices at Times Tower Pulse Live Kenya

KRA recalibrated the automated tax system to align with the new law but the EAC Council of Ministers suspended the tariff for two years (2005-2007).

This reverted the rate to 35% for the two years, which were then extended for another two years.

However, there was a stipulation that only rice from Pakistan would enjoy the rate. Export Trading Company then imported rice from Burma, Vietnam and Thailand but still enjoyed the 35% rate instead of 75%.