The High Court has prohibited the Kenya Revenue Authority (KRA) from imposing Value Added Tax (VAT) on transport services for unprocessed agricultural produce. This ruling emerged from a case in which KRA sought Ksh 20 million in VAT from logistics firm Kuehne + Nagel Limited.
The tax was related to consignments of cut flowers transported from various farms to Jomo Kenyatta International Airport (JKIA) between 2010 and 2012.
Kuehne + Nagel contested the tax demand, asserting that under Paragraph 17 of Part A of the Fifth Schedule to the then VAT Act, transportation services for unprocessed agricultural produce were zero-rated, meaning they should not attract VAT. KRA, however, contended that cut flowers qualified as processed products and that the zero rating applied only to international transport services.
High Court Judge Benjamin Musyoki ruled in favor of Kuehne + Nagel, stating that the VAT Act clearly zero-rated the transportation of unprocessed agricultural produce, regardless of the destination. He emphasized that the law did not distinguish between domestic and international transport in this context. Consequently, KRA’s demand for VAT was deemed unfounded.
The flower industry, a critical segment of Kenya’s agricultural exports, stands to benefit significantly from this judgment. As one of the leading exporters of cut flowers globally, Kenya relies heavily on efficient transport logistics to maintain the freshness and quality of its produce. By confirming that transport services for unprocessed agricultural goods are zero-rated, the ruling reduces potential cost burdens on exporters, enhancing their competitiveness in international markets.
This ruling highlights the importance of adhering to the specific provisions of tax laws and provides clarity on the tax treatment of transport services for unprocessed agricultural goods in Kenya. Businesses involved in the transportation of such produce can now operate with greater certainty regarding their tax obligations.