Taxman loses quest for Sh1.6b Kenya Pipeline Refineries Ltd tax

High Court Judge Justice George Odunga deliveres a judgement on former CS Michael Kamau at the Milimani law courts on 9th March, 2016. Eng. Michael Kamau is challenging his prosecution over corruption charges.PHOTO.FIDELIS KABUNYI

The Kenya Revenue Authority has lost a six-year court battle against the Kenya Pipeline Refineries Ltd in which it was seeking to recover Sh1.63 billion in taxes.

In a ruling delivered by Justice George Odunga on Monday, the High Court said the taxman had violated the law by demanding taxes from the fuel that Kenya Pipeline Refineries Ltd (KPRL) consumed in its furnaces and boilers to produce heat and run its machinery. Justice Odunga said for 45 years, KPLR had relied on an initial communication by the Kenya Revenue Authority (KRA) that oils used in the refinery, whether received as such or produced in the plant, were not subject to duty.

“The respondent (KRA) ought to have given the applicant sufficient notice of its intention to reverse its earlier position on the applicant’s liability to pay taxes where the fuel oil was consumed in the furnaces and boilers to produce heat and to run the applicant’s machinery so as to enable the applicant to change its position,” said the judge.

Failing to do so, Justice Odunga ruled, amounted to an arbitrary action on KRA’s part since for 45 years, it had not come out to demand taxes.

Carried out audits

Consequently, the court issued an order prohibiting the Commissioner of Customs Services from demanding the tax, penalties, and interest contained in a demand letter dated December 5, 2011.

KPRL had told the court that since it started operations in 1965, KRA had allowed it to use the fuel oil derived from the refining process to operate its furnaces and boilers.

The refinery said the taxman had even carried out audits on the machinery over the period.

It termed KRA’s demands ‘unfair and unreasonable’.

In 2011, KRA had written to KPRL claiming the plant had been using some of the fuel oil that is refined from crude oil to run its machines.

KRA had alleged that this amounted to local consumption of warehoused goods and demanded taxes and penalties amounting to Sh1.63 billion.

However, KPRL told the court that all the oil processed in the plant was the property of oil marketers, who had agreed that some of the fuel oil derived during the processing of their crude oil cargo be used to run the refinery. Kenya stopped refining oil in 2013 because of the plant’s inefficiency.

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