Business Laws (amendment) Act, 2024 - Sez

Business Laws (Amendment) Act, 2024- Goods sold within an SEZ are not deemed to have entered the customs territory and therefore, enjoy the benefits and exemptions conferred under the SEZ Act.

The Business Laws (Amendment) Act, 2024, which came into force on 27th December 2024, introduced significant changes to the Special Economic Zones (SEZ) Act. It clarified that goods sold within the customs controlled area of an SEZ are not considered to have entered the customs territory and therefore continue to enjoy the benefits and exemptions conferred under the SEZ Act. A pertinent case that illustrates how this works is De La Rue Currency & Security Print vs. Commissioner for Domestic Taxes (81/2019).

Facts of the Case

De La Rue Currency and Security Print Limited (DLRKe) is a company incorporated in Kenya. It is a licensed Export Processing Zone (EPZ) enterprise and engages in the manufacturing of banknotes and security printing. The Kenya Revenue Authority (KRA) conducted an audit of DLRKe’s transactions from 2013 to 2017 and subsequently issued an assessment of Kshs. 1,219,192,946, which included penalties and interest, for VAT on the sale of banknotes to the Central Bank of Kenya (CBK).

DLRKe Submissions

DLRKe argued that, as an EPZ entity, it operates outside the Customs territory and, as such, is not subject to VAT under Section 5(5) of the VAT Act, which stipulates that tax on the importation of taxable goods is the responsibility of the importer at the time of importation.

DLRKe contended that CBK, as the purchaser, was the importer of the banknotes and should be responsible for paying any import duties or taxes. The company further relied on its contract with CBK, which stated that CBK would handle the taxes.

DLRKe argued that its role was limited to placing the goods ready for collection by CBK and, as such, it had no obligation to account for VAT on the transaction.

KRA’s Submissions

The KRA referenced Section 2(2) of the East African Community Customs Management Act (EACCMA), which provides that goods must be entered for home consumption through a prescribed form and upon payment of the requisite duty. The KRA argued that DLRKe, being the party that entered the banknotes for home use, was responsible for filing the necessary forms and paying the customs duty.

Tribunal’s Analysis and Findings

The Tribunal found that EPZs are outside the Customs territory, and goods moving from Customs territory into an EPZ are considered exported to the zone, while goods moving out of the EPZ to Customs territory are considered imported and subject to applicable duties. The Tribunal also noted that, under Section 2 of the EACCMA, the owner of the goods is both the importer and exporter. However, it clarified that the importer is the party who physically possesses the goods when they enter the Customs territory, meaning that CBK, as the importer, was responsible for paying the customs duties.

The Tribunal examined the customs import entry and found that CBK was listed as the importer while DLRKe was listed as the exporter of the banknotes. As a result, the Tribunal held that it was CBK’s responsibility to pay the customs duties on the banknotes purchased from DLRKe.

The Tribunal further ruled that since the items were exported from the EPZ, they were not subject to VAT under the VAT Act. The Tribunal concluded that the KRA should have directed the VAT and customs duty obligations to CBK, rather than DLRKe.

Conclusion & How We Can Assist

The clarification through the Business Laws (Amendment) Act, 2024 provides guidance for businesses operating in SEZs especially in light of the increased trade between entities within the customs-controlled areas of a SEZ. For any enquiries on this or any other matter do not hesitate to contact us at law@cmadvocates.com