The High Court sitting in Nairobi has dismissed an appeal by Mars Logistics Limited contesting a charge of Value Added Tax (VAT) on transportation services among other claims.
Mars Logistics Limited had contested Tax Appeal Tribunal’s (TAT) decision that transportation of goods in transit attracts VAT at the rate of 16%.
The TAT had also held that transportation services that end outside Kenya are not exported services and thus taxable.
The First Schedule to the VAT Act, 2013 exempts VAT from services offered in relation to goods in transit. In its decision of 27th February 2018, TAT had ruled in favour of KRA, that Mars Logistics Limited’s sole business offered transport services for transit goods that were taxable under the VAT Act. 2013.
The tribunal had further held that the company was not entitled to claim exempt status for the sale of motor bikes because the motor bikes were not exempt.
Decision of the High Court Last week, the Court held that under the VAT Act 2013, the determination of whether the services are exported out of the country is that the same must be for consumption outside Kenya.
Consumption is not determined by reference to the payer, location of the service payer or of the person who is requisitioning for the service, but the place where the services are consumed. In the instant case, the court found out that the transport services were consumed in Kenya and had not been exported.
In dismissing Mars Logistics Limited argument that regulation 20 of the Regulations made pursuant to the repealed Act continued to apply until the 2017 Regulations came into force, the Court held that ‘subsidiary legislation cannot override the express provisions of statute’. Under the VAT Act, 2013, transportation of goods in transit is not zero-rated nor was it exempt from
VAT.
The Court upheld the findings of the Tribunal that in order to qualify for zero-rated status, the service should be specifically provided in the law.
The Court emphasized that services offered in relation to goods in transit were previously zero-rated but under the VAT Act, 2013 they were not.
