The Kenya Revenue Authority (KRA) can go ahead and collect withholding tax from shippers on container demurrage charges, a judge has ruled.
The pending withholding tax from different shipping lines amounts to over Sh2 billion.
Commercial court judge Francis Tuiyott yesterday ruled in favour of KRA in the judgement of a consolidated tax appeal case filed by seven shipping lines.
They had protested 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 the appeal from the Tax Appeals Tribunal 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 determination, 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 court ruled.
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.
