KRA blames 'human error' after rice importer gets away with Ksh.500 million unpaid tax

Kenya Revenue Authority is blaming its human resource and failure in its technology system in a tax dispute that has seen a rice importer gets away with Ksh500 million unpaid tax.

In a legal battle before the Supreme Court, the taxman revealed that Export Trading Company Ltd ( importer) paid a preferential tax rate of 35% on imported instead of 75% due to ‘human and system error’ that failed to distinguish the country of origin of the company imported the rice between 2007 and 2009.

According to KRA, its systems had recorded that the rice was imported from Pakistan, which enjoyed a lower rate compared to other countries instead of the actual countries the rice had come from.

It is after implementing the lower tax rate that KRA established that the rice imported from Burna, Vietnam and Thailand whose goods are given higher tax rates.

Following the error, KRA, therefore, wanted the court to force the importer to pay Ksh.378 million plus penalties and interest amounting to Ksh.138 million to recover the remaining taxes.

The Supreme Court, however, dismissed KRA’s request faulting the taxman for failing to calibrate the Tradex Simba System, an automated tax collection and import clearance system to distinguish countries of origin of various goods entering through the Kenyan border.

The court’s five-judge bench noted that it is incomprehensible how a taxpayer is made to pay the consequences of KRA’s failure to put in place a correct rate in a system it had full control over.

“The appellant acted unfairly in demanding for the alleged short levied duty almost 4 years after the initial assessment and payment of the duty so assessed were irrational and did not accord the respondent its right to fair administrative action,” the judges led by Deputy Chief Justice Philomena Mwilu ruled.

The judges pointed out that the importer had a legitimate expectation after the taxman failed to collect duty at the applicable rate having applied the 35% rate on the rice instead of 75%.