The Tax Tribunal has declined a request by ICEA Lion Life Assurance Limited to order KRA to refund Sh296 million in taxes which was allegedly paid in error.

The five-member Tribunal chaired by Robert Mutuma faulted ICEA for filing the appeal without following the laid down dispute resolution procedure.

“The Tribunal is alive to the principle that where a specific dispute resolution mechanism is prescribed by the Constitution or a statute, parties should first resort to that mechanism before invoking the jurisdiction of the court,” he said.

The Tribunal said the only option that would have been available to ICEA  in addressing the issue of refund for the tax it claims to have paid in error would have been to either seek the review or set aside the judgment entered by the tribunal in 2019 touching on the same issues.   

“In light of the foregoing, the Tribunal finds the Appellant’s appeal is incompetent as it was filed without a review decision. There is therefore no appealable decision upon which the appeal is grounded and consequently the same fails,” he added.

In September 2018, KRA  issued an assessment demanding Sh900 million in taxes, penalties and interest from ICEA.

The firm provides financial services and products such as insurance, pensions, investments and funds.  

The assessment conducted in 2018 arose out of KRA's review of the firm's operations between January 2014 and December 2017 covering withholding tax, Pay as You Earn and Value Added Tax.

In the review, KRA discovered among other things that ICEA sold a building to the Jomo Kenyatta University of Agriculture and Technology but failed to account for VAT on the sale of the property.

But ICEA opposed the assessment and KRA subsequently amended its assessment to Sh696 million. The new assessment comprised a principal tax of Sh464 million, penalties of Sh23 million and interest of Sh209 million.

ICEA being aggrieved appealed to the Tax Tribunal on January 25, 2019, and later applied to have the matter resolved through KRA’s Alternative Dispute Resolution (ADR) mechanism.

The two signed an ADR agreement on September 30, 2019. Based on the terms of the agreement, court records indicate that ICEA proceeded to pay the agreed principal tax liability of Sh347,017,754 in five monthly installments of Sh57,836,292 each and fully settled the entire principal tax liability.

ICEA also applied for a waiver of penalties and interest arising from the assessment, amounting to Sh142,678,371.

According to the Tribunal's decision, one of the issues in the ADR forum was the VAT assessment on the sale of property by ICEA to JKUAT.

KRA asserted that VAT of Sh296 million was due and payable since the transaction did not qualify as a transfer of a business and hence was not VAT zero-rated. 

It had earlier indicated that the transaction qualified as a ‘transfer of a business as a going concern hence VAT zero-rated’.

It retracted from that position after Sh296 million was 'erroneously' paid saying the transaction was subject to VAT at the standard rate of 16 per cent and the money paid was not erroneous.

KRA argued that the transfer of a commercial property attracts VAT in Kenya.

“The Appellant (ICEA) transferred a commercial property and as a result of the transfer, VAT of Sh296,000,000 was assessed. These are taxes that have accrued according to the law and nobody other than the national government has the power to waive and or vary the said tax,” the Tribunal's decision reads in part.

The Tribunal said it had the benefit of reviewing both the ADR agreement executed between the parties on September 30, 2019, and the Consent dated November 21, 2019.

“It is clear to the Tribunal that the issue of the VAT payable in respect of the sale of the property to JKUAT by ICEA was a subject of discussion during the foregoing ADR negotiations and formed part of the tax dispute settled by consent in 2019."

In the circumstances, the Tribunal said the issue of the VAT payable in respect of the sale of the property to JKUAT was determined with finality by the agreement executed by the parties on November 21, 2019.

The appeal by ICEA was subsequently struck out