Kenya: High Court Determines That Game Park Entry Fees Were Not Subject To Value Added Tax Under The Repealed VAT Act

The High Court has given its decision in Income Tax Appeal No. 17 of 2017 The Commissioner of Domestic Taxes v. Lewa Wildlife Conservancy Limited. In its decision, the High Court has upheld the position that game park entry fees were exempt from Value Added Tax (VAT) under the now repealed VAT Act, Cap 476 of the laws of Kenya.

In 2001, the Taxpayer wrote to the Kenya Revenue Authority (KRA) seeking clarification on the VAT status of game park entry fees. In response to this request, KRA wrote to the Taxpayer stating that game park entry fees were not taxable. Despite this representation, KRA sought to charge VAT on game park entry fees charged to the Taxpayer's customers between the 2009 and 2013 years of income. The Taxpayer lodged an appeal at the Tax Appeals Tribunal (the Tribunal). The appeal was allowed on the basis that KRA's representations on the tax treatment of game park entry fees created a legitimate expectation that KRA would not at a future date demand any taxes. KRA, being aggrieved by the decision of the Tribunal, appealed the said decision to the High Court.

The key findings of the High Court in dismissing KRA's appeal are:

  • Game park entry fees were exempt from VAT under the now repealed VAT Act;
  • in interpreting statute, in the absence of express legislative intention, the language of the statute itself must be taken as being conclusive. In our view, this finding is consistent with the principle that tax laws ought to be subject to strict interpretation;
  • KRA may create legitimate expectation on the manner in which it will interpret and apply tax laws;
  • KRA's mandate under the KRA Act includes administering and enforcing tax laws. Representations made by KRA regarding the manner in which it interpreted and applied the repealed VAT Act were unambiguous and lawful;
  • representations made by KRA regarding the manner in which it interpreted the provisions of the repealed VAT Act are not contrary to Article 210(1) of the Constitution that provides that:

    "No tax or licensing fee may be imposed, waived or varied except as provided for by law."

  • representations made by KRA on the manner in which it interprets a tax statute are not tantamount to a tax waiver; and
  • the court considered that it would be impossible for the Taxpayer to recover VAT from all the visitors to the conservancy for 12 years.

Implications of the decision

The decision by the High Court affirms the position that KRA may create legitimate expectation based on representations made and interpretations given to taxpayers. The mere passage of time does not alter any such interpretations and representations – hence, taxpayers may rely on them with confidence.

Taxpayers may also rest easy knowing that the Kenyan courts continue to recognise and apply the principle of strict interpretation of tax statutes.

KRA has a right to appeal the decision to the Court of Appeal, but unless and until this decision is overturned, it will apply to taxpayers and KRA.

Click here for the full decision of the High Court.

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