Plastics manufacturer gets reprieve in Sh299 million excise duty demand

The court held that it was wrong to impose excise duty at the rate of 10 percent on the company's locally manufactured plastic products, considering that the applicable law (Finance Act, 2022) and the legislature provided that the duty would only be levied on imported articles of plastic.

"The court agrees with the tribunal’s considered view that only imported articles of plastic were excisable at 10 percent. Further, the Commissioner of Domestic Taxes was not justified in levying excise duty on the company's locally manufactured items of plastic in the months in dispute," he said.

The legal dispute started after the Commissioner issued the manufacturer with two letters in May and September 2023, for tax assessment demanding Sh145 million and Sh154 million, respectively, totalling Sh299 million.

The company objected to the assessment and filed a dispute at the Tax Appeals Tribunal, where a ruling was delivered on June 28, 2024, in its favour.

Aggrieved by the decision, the Commissioner moved to the High Court seeking a reversal of the ruling on grounds that the tribunal's judgement was based on legislative intent rather than the actual law.

According to the Commissioner, the tax regime at the time did not exclude locally manufactured plastics from the excise duty. The Commissioner added that the tribunal failed to adhere to the enacted statutory provisions of the Excise Duty Act as amended by the Finance Act.

However, Justice Njoroge dismissed the appeal and ruled that a plain reading of the Finance Act 2022 points out that the locally manufactured articles of plastic were left out of excise duty.

Stating that tax statutes must be interpreted strictly with no room for intendment or implication, the court found that the applicable tax statute exempted locally manufactured plastics from excise duty.

"Therefore, the law in place at the time of the assessment that is the subject matter of this appeal provided that only imported articles of plastic were excisable at 10 percent," said Justice Njoroge.

He added that the National Assembly itself had written to the Kenya Association of Manufacturers stating that the tariff applied to imported articles of plastics, not locally manufactured.

"It is the court’s understanding that it is within the authority of the National Assembly under the Constitution to enact legislation governing the manner in which a particular form of tax is administered including the manner in which it is imposed, calculated, and enforced. Consequently, there is and was no room to assume that Finance Act 2022 did not intend to use the word “imported” as alleged by the appellant," said the judge.

→ [email protected]