KENYA – The Tax Appeal Tribunal (TAT) has directed the Kenya Revenue Authority (KRA) to refund KES10.28 million (US$79,637.56) in excise duty to Kenafric Industries, following a dispute over levies paid on preforms used in manufacturing plastic bottles.
The ruling marks a significant victory for the consumer goods firm, which had argued that the imported packaging bottles were raw materials essential for the production of its bottled products.
In its ruling, the TAT determined that the bottles in question qualify as raw materials under Section 14 of the Excise Duty Act, allowing Kenafric Industries to offset the excise duty paid on these materials against the total tax payable on the final product.
The tribunal found that the KRA’s decision to disallow Kenafric’s claim of excise duty on the imported preforms for making plastic bottles was erroneous.
“It is therefore the tribunal’s finding that the respondent (Commissioner of Domestic Taxes) erred in disallowing the appellant’s claim of excise duty in respect of imported preforms for making plastic bottles for packaging its bottled products under Section 14 of the Excise Duty Act,” the TAT stated.
This ruling has been welcomed by non-beverage manufacturers who use plastic bottles to package their products, especially those who opposed the recent proposal in the Finance Bill 2024 to delete Section 14 of the Excise Duty Act.
The proposed deletion, which has been shelved, would have increased their input costs by removing the provision that allows for claims on excise duty paid on raw materials used in manufacturing excisable products.
The KRA had contended that preforms are finished products, arguing that raw materials should be integral to the final product, such as the liquid content, rather than merely serving as packaging.
However, the tribunal sided with Kenafric Industries, agreeing that the beverage could not be sold without its packaging, which is essential for the product’s marketability.
“This position is supported by the provisions of Section 12 of the Excise Duty Act which specifies bottled of similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juice as a class of excisable goods that cannot be sold in their state other than accompanied by a type of packaging , in the appellant’s case being bottles,” said the tribunal.
Kenafric Industries ltd is one of the largest manufacturers of confectionery, food, footwear, and stationery products in Kenya
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