CIGARETTE manufacturer Mastermind Tobacco has been ordered to pay Sh442 million to the Kenya Revenue Authority in under-declared exercise duty for the year 2007/08.
The manufacturer of the popular Supermatch brand has lost a court case through which it wanted to quash an agency notice for the under-declared taxes.
Yesterday Mastermind said it had appealed against the decision and wondered why KRA had decided to go public over the judgement that was delivered in September. "Stay orders have been issued against the decision," said a Mastermind source who asked not to be named.
Mastermind's case was based on the Finance Act, 2003 (Act No. 2003) which amended the fifth schedule to the Customs & Excise Act by categorising payment of excise duty on cigarettes according to the retail selling price of cigarettes.
According to KRA submission, before July 2003, excise duty on cigarettes was determined by the production cost incurred by the manufacturer plus the mark up imposed by the manufacturer on the cigarettes.
A standard rate of tax was then imposed on the total amount. However, because the production costs were not standardised for all manufacturers, a new excise tax regime was put in place through the Finance Act No. 15 of 2003.
The new regime based excise duty on cigarettes on the retail selling prices by creating four categories of retail prices namely A, B, C and D.
KRA says Supermatch was placed in category B since its retail selling price at Sh1,900.00 was between Sh1,500.00 and Sh2,500.00 which was the price brand for category B.
Things however took a twist in June 2007 when the Finance Act, No. 9 of 2007 amended Part II of the fifth schedule to the Customs & Excise Act Cap 472 increasing the rates of excise duty on cigarettes but maintained the four categorisations.
Mastermind then increased the retail selling price of Supermatch for Sh1,900.00 per mille (every one thousand sticks) to Sh2,560.00 per mille effectively moving it from category B to C from about August 20, 2007.
The firm however refused to pay the higher amount of excise duty insisting that KRA was bound by Gazette Notice No. 6776 which had placed it category B. Mastermind also argued that the said Finance Act 2007 was ambiguous and unclear.
But in its ruling, the court determined that the Customs & Excise Act was the basis for the calculation of excise duty and not the gazette notice.
"The Gazette Notice was only valid for the period when the rate stated therein was valid," a statement from KRA said. "Once the rates were altered by succeeding Finance Acts the Gazette Notice ceased to apply."