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Kenya: Court Rules Tax Refunds Must Be Prompt

(Apr. 29, 2014) Kenya’s High Court determined on April 14, 2014, that taxpayers have a right under the Constitution to fair administrative action related to their tax payments. (Catherine Mutava, Kenya: Constitutional Right to Expeditious Settlement of Refund Claims, TAX NEWS SERVICE (Apr. 25, 2014), International Bureau of Fiscal Documentation online subscription database; The Constitution of Kenya (rev. ed. 2010), LAWS OF KENYA.) The Constitution provides that “[e]very person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.” (Constitution, art. 47(1).)

The case in question was Tata Chemicals Magadi Limited (Magadi) v. Commissioner of Domestic Taxes (Large Taxpayers). (Petition No. 476, 2013, cited in Mutava, supra.) The limited liability company is in the business of making and exporting soda ash and salt. Because it exports 90% of its soda ash, it is entitled to Value-Added Tax (VAT) refunds. A dispute had arisen between the company and the Kenya Revenue Authority (KRA) over the refund amount due the company for the January 2007 to September 2012 period; the amount for which the company had petitioned was held in escrow by the KRA pending resolution of the matter. (Mutava, supra.)

Once there was an agreement on the total amount due back to Magadi, which was more than the escrow amount, the KRA announced that the portion in escrow would be offset from the refund against future tax liabilities. Magadi then asked for an explanation of the legal basis of the KRA’s decision. Magadi claimed it was owed KES742,815,182 (about US$8.4 million) in refunds and argued that the lack of a prompt refund was a violation of the right to timely administration action, as specified in the Constitution. (Id.)

The High Court decided that it was improper of the KRA to offset any amount of the refund due and therefore quashed the KRA move. In addition, the ruling stated that Magadi was entitled to expeditious handling of its claims and that the KRA should pay within 90 days the refund that is pending. (Id.)