MultiChoice Africa Holdings, the company behind DSTV and Showmax, has been hit with a tax demand of Sh681,513,813 by the Kenya Revenue Authority (KRA) for input tax spanning the period from 1 January 2021 to 30 June 2023.
Tax Appeals Tribunal, chaired by Justices Christine Muga, Elishah Njeru, and Ololchike Spencer, upheld KRA's decision to issue the tax assessment and reject MultiChoice's input tax claims.
The Tribunal ruled that KRA acted lawfully, stating that MultiChoice operates as a supplier in the digital marketplace under business-to-consumer transactions and therefore falls under specific VAT obligations.
According to the Tribunal, the services provided by MultiChoice, including DSTV and Showmax, are subject to Value Added Tax (VAT) as per Section 8 of the Value Added Tax Act (VATA).
"The upshot of the foregoing is that the Tribunal finds and holds that the appeal lacks merit and the appeal be and is hereby dismissed. The objection decision dated 3 June 2024 is hereby upheld," stated Justice Muga.
KRA had written to MultiChoice on 6 July 2023, informing them that their services were taxable under Section 5(7) of the VAT Act.
However, MultiChoice argued that since 2013, the tax authority had agreed to subject their services to VAT under Sections 5(1) and 8(2)(c) of the VAT Act.
The company accused KRA of changing its stance by invoking Section 5(7), allegedly to deny MultiChoice its entitlement to claim input VAT. MultiChoice described the move as unlawful, fabricated, and unjust.
MultiChoice insisted that the VAT treatment of its services should continue to follow Sections 5(1) and 8(2)(c).
It argued that amendments made to Section 5 through the Finance Acts of 2019 and 2021 had no bearing on their operations.
The company further stated that it has no physical presence in Kenya, no operations, assets, or employees, and that its DSTV broadcasting services are transmitted from outside the country via satellite. Showmax, it added, is streamed online to Kenyan subscribers.
MultiChoice said it uses MultiChoice Kenya Limited (MCK) as its agent to collect VAT from subscribers and to manage customer services.
The company denied having any local technology or platforms that facilitate direct sales of DSTV services to Kenyan users.
In response, KRA argued that Section 5(1)(c) of the VAT Act applies to imported taxable services and that, following amendments made through the Finance Act 2019, DSTV services should be treated as such.
The taxman further noted that MultiChoice, like all taxpayers, must comply with the updated provisions of the VAT Act.
KRA added that MultiChoice was not permitted to claim input VAT under Regulation 11 of the VAT (Electronic, Internet, and Digital Marketplace Supply) Regulations 2023. It said the disallowance was also in line with the VAT Digital Marketplace Supply Regulations of 2020, now replaced by the 2023 regulations.
KRA maintained that DSTV services, as imported digital services, fall under the digital marketplace provisions in Sections 5(1) and 5(7)-(9) of the VAT Act, effective from 1 November 2019.
