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KRA wins Sh2b claim on shippers

BUSINESS
By Macharia Kamau | February 26th 2020

The Kenya Revenue Authority (KRA) has scored a major win after a court ruling gave it the go-ahead to collect Sh2 billion from seven shipping lines.

The High Court earlier this month ruled that KRA could collect withholding tax from shipping lines on container demurrage charges – which are additional fees levied on cargo importers for continued use of ships due to delay in offloading goods after arrival at port.

Judge of Milimani Court’s Commercial and Admiralty Division Francis Tuiyott ruled in favour of KRA in a consolidated tax appeal case filed by the shipping lines operating in Kenya protesting taxation of income on demurrage charges.

The shippers – CMA CGM, Gulf Badr Group, Oceanfreight, Sturrok Shipping, Maersk Kenya, WEC Lines and Inchcape Shipping Services – wanted the court to make a finding that demurrage charges are not subject to tax in Kenya.

Demurrage charges

In the appeal on a ruling by the Tax Appeals Tribunal, the companies argued that demurrage constitutes part of the amount received on account of the carriage of goods and is therefore part of the cost of shipping.

KRA on the other hand said demurrage charges do not form part of freight levied by shipping lines as it could only be accrued after the goods had been cleared through Customs and entered the country.

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In his determination, Justice Tuiyott held that freight comes to an end at the port of landing and any demurrage imposed on containers for late return is a post-importation charge.

The court upheld the earlier ruling by the tribunal, noting that demurrage charges paid by Kenyan firms “should be treated as income derived from Kenya” and that shipping agents were liable to withhold tax. 

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