Multi-choice African Holdings, the providers of DSTV and Showmax, have been slapped with a Sh681,513,813 input tax owed to the Kenya Revenue Authority (KRA) for the period January 1, 2021, to June 30, 2023.

The tax tribunal, led by Justices Christine Muga, Elishah Njeru, and Ololchike Spencer, said KRA was justified in issuing an assessment tax and disallowing the input tax claimed by Multi-choice.

The tribunal noted that KRA declined to allow the deduction of input tax because Multi-choice was a supplier in the digital marketplace under business-to-consumer transactions.

The judges said that the services that Multi-choice offers were subject to Value Added Tax (VAT) pursuant to the provisions of Section 8 of the Value Added Tax Act (VATA).

“The upshot of the foregoing is that the Tribunal finds and holds that the Appeal lacks merit and the appeal be and is hereby dismissed. The objection decision dated June 3, 2024, is hereby upheld,” said Justice Muga.

The Tribunal noted that through a letter dated July 6, 2023, KRA informed Multi-choice that the nature of their supplies was chargeable to tax pursuant to the provisions of Section 5(7) of the VAT Act.

However, DSTV providers said KRA agreed to receive their VAT payments from September 2013 on the basis that this was chargeable pursuant to section 5(1) and 8(2)(c) of the VAT Act.

DSTV said that their supplies are now chargeable to VAT pursuant to section 5(7) of the VAT Act, with the sole intention of denying it its right to claim input VAT, which is contrary to the law, contrived, and inequitable.

Multi-choice wanted KRA to continue to subject its services to VAT pursuant to Section 5(1) as read together with Section 8 (2)(c) of the VAT Act.

Multi-choice said the amendments introduced by the Finance Act 2019 and Finance Act 2021 on Section 5 of the VAT Act served no purpose.

The Canadian-based company said that it does not have any operations, assets, or employees in Kenya.

It said that its television broadcasting services (DStv services) are supplied from outside Kenya and received by customers in Kenya through a broadcasting satellite located outside Kenya, while its Showmax services are provided via online streaming.

The DSTV provider said that broadcast technology enables it to offer services to its Kenyan subscribers without creating a permanent establishment in the country.

It said that it appointed Multi-Choice Kenya Limited (MCK) to act as the agent for the collection of VAT from its customers and also provide them with Subscriber Management Services.

The DSTV providers denied that they had any technology that enables it to sell the DSTV channels to users in Kenya or a platform that enables users in Kenya to buy the DSTV services.

However, KRA said Section 5(1) (c) of the VAT Act is applicable to the supply of imported taxable services.

The taxman said that upon the enactment of the Finance Act 2019, amendments to Section 5 of the VAT Act, Multi-choice and all taxpayers were obligated to subject DSTV services in line with and in compliance with the amendments.

KRA said it was erroneous for Multi-choice to suggest that DSTV Services should be subjected to VAT pursuant to Section 5(1) and Section 8 of the VATA.

KRA said Multi-choice was prohibited from claiming input VAT under Regulation 11 of the VAT (Electronic, Internet, and Digital Marketplace Supply) Regulations, 2023.

The taxman said that it disallowed input VAT claimed by Multi-choice pursuant to the VAT under Digital Marketplace Supply Regulations, 2020, which have since been replaced by VAT Digital Marketplace Supply Regulations 2023.

KRA said that effective November 1, 2019, DSTV services were imported services that were supplied through a digital marketplace as provided for under Section 5(1) and Section 5(7)-(9) of the VAT Act.