Taxman loses another bid to claim Sh288m tax arrears

Drug manufacturer, Cosmos Limited, has escaped Kenya Revenue Authority (KRA) tax dragnet after the High Court ordered it should not pay Sh288 million worth of tax.

Just like its competitor in the pharmaceutical drugs industry, Universal Corporation, from which the Kenyan Caesar was demanding Sh482 million, Cosmos convinced High Court judge George Odunga that it was exempted from paying VAT tax on raw materials for making medicines.

Judge Odunga noted that the taxman had breached the law by demanding tax revenue when it was clear the drug maker enjoyed tax relief, which was part of a government policy to encourage local production of affordable medicines.

The taxman was not spared as the court also made orders forcing it to issue a tax refund to Cosmos worth Sh11 million.

“In my view, the financial public requires decisiveness and finality in the conduct of their business, and they should not be placed in limb or state of uncertainty for unnecessarily long periods as to when their money will eventually be refunded. With the current volatile financial markets, the economy cannot afford to have such uncertainty. Therefore where it has been ascertained that a tax payer is entitled to a refund, such refund ought to be made timeously and without unreasonable delay to enable them invest the same.

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“It is my view and I hereby find that it would be contrary to justice to compel the applicant to pay the sum demanded by the respondent. To do so would be contrary to substantive fairness which dictates that a body must not act conspicuously unfairly or unfairly as to abuse its power, or in unjustified breach of legitimate expectations.” Judge Odunga ruled.

KRA was demanding tax for the period between January 2008 and February 2013. The authority alleged that Cosmos did not avail tax exemption letters from the Treasury and that some of the imports were subject to tax charges.

But judge Odunga ruled that the taxman, by demanding the amount, had put Cosmos in a corner, which it could not be able to shoulder.

He said that the drug maker had a legitimate expectation that the agreement, which was in place in 2001 ought not to bear tax on raw materials, was to continue even after the change of finance Act.

“That the applicant (Cosmos) is in control of the instruments through which the actual taxes are payable is not in doubt. By not regularly monitoring its said instruments with a view to determining the actual taxes payable, the respondent placed the applicant in the unenviable position where the applicant is being exposed to shouldering the burden which legally ought not to have been shouldered.

“In my view the circumstances of this case cry loud against the imposition of the burden on the applicant,” the judge.