The High Court has sided with East African Seed Company in a hard-fought tax dispute, throwing out a Sh221 million assessment that the Kenya Revenue Authority had levied against the firm. The judgment overturns earlier decisions by both KRA and the Tax Appeals Tribunal, delivering a notable setback for the taxman and a rare legal reprieve for a company caught in a complex post-restructuring audit.
The origins of the dispute lie in a KRA audit that swept across the company’s books for the years 2016 to 2020. At the end of that exercise, the authority determined that East African Seed owed Sh221.2 million in value-added tax and other outstanding tax liabilities — a figure large enough to trigger a prolonged legal fight that eventually landed before the High Court.
The most contentious issue centred on the company’s transfer of its seed business to Agriscope Africa Limited in April 2020. KRA’s position was that there was not enough proof to establish that the transaction had been wrapped up before April 25, 2020. That date matters enormously: amendments to Kenyan tax law that took effect on that very day brought business transfers under a 16 percent VAT bracket for the first time.
East African Seed Company maintained that the deal was completed on April 21, 2020 — a full four days before those legal changes came into force. Had KRA’s reading prevailed, the transfer would have attracted the new VAT charge, accounting for a significant slice of the contested Sh221.2 million bill. The company’s lawyers argued the transaction predated the amendments and should therefore be treated as VAT-exempt.
The court came down firmly on the company’s side. The judgment found that East African Seed had “sufficiently demonstrated that the business transfer occurred before the tax law change” and was duly entitled to VAT exemption. Critically, the court also concluded that both KRA and the Tribunal had failed to give the company’s supporting evidence adequate consideration across a number of the disputed tax categories.
Beyond the VAT question, the court addressed a separate row over discrepancies in the company’s import data, and went on to strike down withholding income tax demands spanning 2016 to 2019. On this point, the High Court found that the Tribunal had not grappled with a legal gap in KRA’s authority to pursue tax recovery during that window — a finding with potentially wider implications for how the taxman exercises its enforcement powers.
For East African Seed Company, the ruling draws a line under what has been a years-long and costly dispute with the revenue authority. For the broader business community, particularly firms that have undergone corporate restructuring and may be facing their own KRA scrutiny, the judgment is one that lawyers and finance teams will be studying with considerable interest.
0 comments