Highlands Mineral Water Company will now have to pay Kenya Revenue Authority taxes amounting to sh 155.4 million after losing an appeal challenging the same.

The Company had filed its Input tax claim late and hence was disallowed by KRA.

The appellant faulted KRA’s position that input tax is only deductible when VAT returns are filed in accordance with Section 17 (2) of the VAT Act.

The dispute emanated from the KRA’s decision of disallowing the company’s Input VAT claims on self-assessment VAT returns submitted late on account of being time barred contrary to Section 17(2) of the VAT Act due to late filing of the VAT returns inclusive of penalties and interest.

According to the company, KRA misinterpreted the Act to suggest that where the VAT return is filed late then the firm is only entitled to input tax arising from six months prior the date of submission of the late return.

It was their submission that the Authority erred in law by allowing it’s input tax for the years of income of 2014-2017 due to late filing of VAT returns and therefore resulting in a tax liability of Sh 155,402, 525 inclusive of Interests and penalties.

In their response, KRA argued that Section 44 (1) of the VAT Act requires every registered person to submit a return in the prescribed form and manner in respect of each tax period not later than the twentieth day after the end of that period.

The tribunal noted that Section 44 (1) of the VAT Act requires that the VAT return in respect of each tax period should be filed by a registered taxpayer not later than the twentieth day after the end of that period unless a taxpayer has sought and obtained an approval by the Commissioner for extension of time under Section 44 (2) (repealed by Finance Act, 2018).

“It would follow that where a taxpayer has filed its VAT returns late, then input VAT will only be allowed for deductibility to the extent that it is within six months at the time of filing the return. The six -month period limit would only cease to apply where the taxpayer had sought and obtained the Commoner’s approval to submit a late return,” it ruled.

According to the tribunal, the wording of Section 17(2) is clear and unambiguous and cannot be interpreted to have any other meaning.