KRA Loses Sh900 Million In A Tax Dispute With Coca-Cola

The High Court has dismissed a case in which the Kenya Revenue Authority (KRA) sought Sh900 million from soft drink manufacturer Coca-Cola.

Justice Chacha Mwita upheld the Tax Appeals Tribunal’s decision to prevent the KRA from levying the tax on Coca-Cola Central East and West Africa Limited. The dispute concerned a VAT input refund on export services related to Coca-Cola brand marketing and promotion in Kenya via vernacular media stations and roadshows.

The judge upheld the tribunal’s decision that the beverage manufacturer paid the disputed VAT in the United States as a result of the service agreement between Coca-Cola Africa and Coca-Cola Export. Coca-Cola Export, based in the United States, commissioned the agreement with Coca-Cola Africa, based in Kenya, to promote Coca-Cola brands to local potential customers through advertising.

During the period of April 2014 to June 2016, when Coca-Cola Africa conducted customized advertising in Kenyan local dialects through the media, roadshows, and brand activation, the Commissioner of Domestic Taxes audited Coca-Cola Africa’s VAT filings. The Commissioner made preliminary findings disallowing Sh725,082,158 from the claim for input VAT due to unreported output tax on locally consumed services and local sales.

A witness for Coca-Cola Africa named Mr. Van Der Part made the observation that levying VAT on business-to-business marketing services would lead to double taxation. On his part, the Commissioner stated that even though Coca-Cola Export was a foreign company, the marketing and promotion services were being used in Kenya and were thus liable to VAT. According to Justice Mwita’s ruling, Coca-Cola Africa was not providing any marketing-related services to Kenyan consumers.

Additionally, he supported the tribunal’s conclusion that although marketing and promotion occurred in Kenya, there was no evidence that each Kenyan who viewed the advertisements made a beverage purchase. The criteria, in the opinion of the tribunal, was the consumer’s location, and it concurred with Coca-Cola Africa that Kenyans were the intended audience for the advertising and promotion services. Yet Coca-Cola Export received the benefit in order to grow its sales-related business.

Share

Leave a Reply

Your email address will not be published. Required fields are marked *