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This alert brings to your attention the High Court’s judgment in the case of Highlands Mineral Water Limited (Taxpayer) vs. Commissioner of Domestic Taxes (KRA) Tax Appeal No. E026 of 2020.

KRA disallowed the Taxpayer’s input VAT on late returns filed for the period of January 2014 to April 2017. KRA’s basis was that the input VAT was time-barred in accordance with Section 17(2) of the Value Added Tax, 2013. KRA assessed the Taxpayer KES 155,402,525 which was the disallowed input VAT, penalties and interest.

The Taxpayer opposed KRA’s decision and proceeded to the Tax Appeals Tribunal (Tribunal). The Tribunal dismissed the appeal and confirmed KRA’s assessment and demand. The Taxpayer then appealed to the High Court.

The crux of the dispute was the interpretation and application of  Section 17(1) and (2) of the VAT Act which provide as follows:

Subject to the provisions of this section and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies. If, at the time when a deduction for input tax would otherwise be allowable under subsection (1), the person does not hold the documentation referred to in subsection (3), the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation. Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred. (Emphasis added).