BOOST FOR KRA AS IT WINS SH107M TAX CASE AGAINST KCB INSURANCE AGENT


Following a decision by the Tax Appeals Tribunal on May 28 to dismiss an appeal filed by KCB Insurance Agency Limited, the Kenya Revenue Authority (KRA) is set to collect tax of Sh107,046,316.

For the  Taxpayer, KRA’s treatment of its income earned from services provided to KCB Risk Margin Fund (RMF) as consultancy fees, which are subject to VAT, is erroneous.
Acting in the capacity of an insurance agent whose services were expressly exempt from VAT during the period under review, the Taxpayer informed the Tribunal that KRA conveniently disregarded the fact that the Risk Margin Fund (RFM) services to KCB were provided by the Taxpayer. 

Defending its actions KRA had  informed the Tribunal that the taxpayer’s claim that the fee on administration of KCB Bank’s RFM is premium-based commission, which is exempted from Excise Duty is erroneous.
Holding that KRA was authorised by the law to demand and charge late payment penalty and interest on VAT and Excise Duty not timeously remitted by the insurance agent, the Tribunal reviewed the evidence as presented by both parties.  

After resolving 393 ADR cases between July 2020 and March 2021 this year, a statement from the Kenya Revenue Authority says the taxman has collected over Sh21 billion from its Alternative Disputes Resolution (ADR) mechanism.
So far there has been significant growth in the number of cases resolved and the revenue unlocked under.  ADR mechanism, which was implemented by KRA in 2015. 

“This is marked by a 109 per cent growth in the number of cases and 389 per cent increase in revenue during the nine months compared to a similar period in the 2019-20 financial year,” a statement from KRA said. 

According to the Tax Procedures Act, under the ADR framework, disputes should be resolved within 90 days, if not shorter. Very pocket-friendly as it does not require payment of any filing fees, ADR is a mediation process in which taxpayers can opt to represent themselves without the need for an advocate or a tax representative.

“Despite the current Covid-related challenges, resolution of disputes through ADR has remained unhampered as meetings are conducted virtually. This has further reduced the time within which the meetings are held,” KRA said.

In the 2019-20 financial year, average time taken to resolve ADR cases has reduced from 89 days  to 42 days in the current year.
According to KRA,  the ADR process preserves the relationship between the taxpayer and the authority.

“The mediator ensures that parties are not antagonised and maintains cordial relationships,” the statement said. 

“The process provides a win-win outcome for the parties and prevents further escalation."

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