The High Court has allowed Kenya Revenue Authority to
collect Withholding Taxes from shipping lines on container demurrage charges.
The Withholding Tax from different shipping lines amounts to
over KShs.2 billion.
Milimani Court’s Commercial and Admiralty Division Justice
Francis Tuiyott ruled in favour of KRA in the judgement of a consolidated tax
appeal case filed by seven shipping lines operating in Kenya protesting
taxation of income on demurrage charges.
The shipping lines wanted the court to make a finding that
demurrage charges are not subject to tax in Kenya.
Demurrage fee is the charge levied by shipping lines on
importers for holding the container beyond the free period.
The shipping lines, in their appeal argued that demurrage
constitutes part of the amount received on account of the carriage of goods and
is therefore part of the cost of carriage.
KRA on the other hand held the view that demurrage charges
do not form part of freight levied by shipping lines as demurrage could only be
accrued after the goods have been cleared through Customs and have entered the
country.
In his ruling, Justice Tuiyott held that freight comes to an
end at the port of landing and any demurrage imposed on container for late
return after port clearance is a post importation charge.
Demurrage charge is therefore different from freight.
The High Court judge also held that demurrage charge is an
Income Tax under Section 3 (1) and (92) of the Income Tax Act and that the
shipping lines’ local agents have an obligation to withhold tax on the
demurrage charge when remitting payments.
However, the judge found in favour of the shipping lines
with regard to Value Added Taxes (VAT) on processing fees.
He held that fees associated with loading, unloading and
handling charges do not escape taxation because they have been included in the
cost of freight and therefore taxed under paragraph 9 (2) of the East African
Community Customs Management Act, 2014.
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