Pay TV provider MultiChoice Africa Holdings has lost a Sh681 million tax fight after a tribunal upheld the demand by the Kenya Revenue Authority (KRA).
The tribunal ruled that the taxman was justified in its decision to reject value added tax (VAT) input claims and demand taxes amounting to Sh681 million from the firm in taxes, penalties and interest.
It was noted that although the Dutch company had complied with tax requirements and filed returns through its Kenyan tax representative – MultiChoice Kenya Ltd — KRA did not err in rejecting input tax, in its filings.
“Accordingly, the finding by the Tribunal is that the Respondent (KRA) was justified in issuing an assessment and disallowing the input tax claimed by the Appellant (MultiChoice),” tax appeals tribunal chaired by Christine Muga said.
The firm said it provides electronic audio and video entertainment services through DStv services transmitted via satellite, Dishless DStv services (linear pay TV) known as DStv via streaming or DVS and Showmax services transmitted through the internet also referred to as Over the Top (OTT) Services.
The company said it was properly registered under Kenyan VAT laws and entitled to claim input tax incurred in the course of its business.
The dispute started when its tax representatives wrote to KRA on November 30, 2022, seeking guidance on the implementation and operationalisation of the Tax invoice Management System (TIMS).
This was after the firm realised that the system did not accommodate transactions by non-resident registered persons due to the special characters exhibited by its PIN. KRA then informed the company that the nature of its supplies were chargeable to tax pursuant to the provisions of Section 5(7) of the VAT Act and that the pay-tv provider was prohibited from claiming input VAT.
The taxman then issued a notice of assessment on March 11, 2024 for VAT for the period starting January 2021 to June 30, 2023 totaling Sh681.5 million, inclusive of penalty and interest.
The firm was dissatisfied with the assessment and filed an objection, which was rejected by KRA and went ahead to confirm VAT principal tax of Sh572.7 million.
MultiChoice then moved to the tribunal arguing that the taxman was wrong in failing to find that the television broadcasting services have and continue to be subject to VAT.
The firm faulted KRA for applying the VAT (Electronic, Internet, and Digital Marketplace Supply) Regulations, 2023 before the date in which they took effect.
The company also argued that the taxman was wrong in failing to take into account the fact that it had distinguished the VAT treatment of its television broadcasting services from the VAT treatment of its OTT streaming services.
MultiChoice maintained that it does not have any operations, assets or employees in Kenya and the television broadcasting services (DStv services) are supplied from outside Kenya and received by customers through broadcasting satellites located outside Kenya while its Showmax services are provided through online streaming.
It argued that broadcast technology enables the company to offer services to its Kenyan subscribers without creating a permanent establishment in the country.
The KRA admitted that DStv services are imported services however, it asserted that the said section must be read together with other sections of the Act to determine with specificity the nature of the imported services supplied to customers in Kenya.
According to KRA, by providing DStv services, there is interaction between the company and the service user through the DStv technology.
KRA submitted that it was therefore erroneous for MultiChoice to claim that there was no platform or technology that enables it to sell the DStv channels to users in Kenya or a platform that enables the user to buy the service.
The taxman maintained that the services are electronic services offered either on a digital marketplace, over the internet or electronically.
For DStv services that are streamed over the internet, it would still fall under the definition of supply made through a digital marketplace.
