• The withholding tax from different shipping lines amounts to more than Sh2 billion.
• Demurrage is the charge levied by shipping lines on importers for holding containers beyond the free period.
Image: FILE
The High Court has allowed the collection of withholding taxes on demurrage from shipping lines.
The withholding tax from different shipping lines amounts to more than Sh2 billion. Demurrage is the charge levied by shipping lines on importers for holding containers beyond the free period.
A judgment delivered on February 7 by Justice Francis Tuiyott set aside the decision of a tribunal that said delivery order fees are not part of freight and instead allowed the appeals.
The judge had consolidated tax appeal cases filed by seven Shipping lines operating in Kenya protesting taxation of income on demurrage.
"For Tax Appeal number 31 of 2018, the court allows its appeal on the question of assessment of freight tax on the transhipment cargo originating from Uganda, Rwanda, Burundi and Tanzania," the judge ruled.
The shipping lines, under Ocean freight EA Limited, wanted the court to make a finding that demurrage is not subject to tax in Kenya. In the appeal from the tax tribunal, Ocean Freight EA Company had argued that demurrage constitutes part of the amount received on account of the carriage and is, therefore, part of the cost of carriage.
But the Kenya Revenue Authority held that demurrage is not part of freight levied by shipping lines as it can only be accrued after 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 a container for late return after clearance is a post importation charge. Demurrage is, therefore, different from freight.
The High Court judge also held that demurrage is an income tax and that the shipping lines’ local agents have an obligation to withhold tax on the demurrage charge when remitting payments.
Justice Tuiyott, however, ruled in favour of the shipping lines with regard to 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, hence are taxed under the East African Community Customs Management Act, 2014.