Treasury shakes up tax claims by oil marketers to curb evasion

The National Treasury building in Nairobi.

Photo credit: File I Nation Media Group

Kenya Revenue Authority (KRA) has sealed a loophole that allowed oil marketers to claim tax returns on sales of imported petroleum products without proof that all the levies on the consignments were cleared at the point of entry before being released to them.

The new rule requires oil marketers making input tax claims to present a customs entry showing the name and personal identification number (PIN) of the firm that won rights to import products on their behalf.

Kenya imports all its petroleum requirements through the Open Tender System(OTS), which is centrally coordinated by the Petroleum ministry.

Although all oil marketers in the country are free to bid for import rights, only one of them with the lowest bid price wins the tender for the importation of refined petroleum products on behalf of the industry.

Make claims

The OTS tender winner is required to clear all taxes due on the imported consignment at the point of entry before releasing it to other oil marketers for sale in the market.

The recipients of products from the OTS winner are then allowed to make claims of input tax levy paid by a business on acquired goods and services.

Under the arrangement, the business pays KRA the difference between the output tax and input tax if the amount is positive, or it can apply for a tax refund if the amount is negative.

The changes to the Value Added Tax Act mean that oil marketers will now have to provide proof of tax payment by the winner of the OTS tender before the applications for input tax refunds can be considered.

“The amendment is aimed at ensuring that input is only claimed where it can be proven that the petroleum products were declared at the point of entry and import duties paid by the winning bidder, who subsequently sold the petroleum to other oil marketing companies,” analysts at a law firm, Bowmans said in a brief on the changes.

Payment rule

“However input tax incurred by oil marketing companies that have participated in the open tender system prior to this provision coming into force can be claimed within twelve months,” they further said.

The tax payment rule follows a recent ruling by the Tax Appeals Tribunal that all taxes on imported petroleum products be paid at the point of entry before release to oil marketers for sale.