Excise Duty on Internet Data

Case study: Mawingu Networks Limited v Commissioner of Domestic Taxes (Tax Appeal 1179 of 2022) [2024] KETAT 99 (KLR) (Commercial and Tax) (2 February 2024) (Judgment)

MNL is a private limited liability company incorporated in Kenya. Its main form of business is in the provision of internet data services.

KRA conducted a compliance review of MNL’s returns and found a variance between MNL’s business turnover varied from its declared turnover for Excise duty for the period October 2018 to October 2021.

KRA subsequently raised assessments for Excise tax manually on 15th December 2021, followed by an online assessment via iTax on 20th April 2022.

MNL raised an objection to the assessment on 4th July 2022, which was acknowledged by KRA on 15th July 2022, and upon further communication and deliberation between the parties, MNL provided documents to KRA

The objection was fully rejected by KRA in its objection decision of 29th August 2022.

Being dissatisfied with the objection decision and having paid over half of the total assessed amount of Kshs. 41,710,581, MNL filed a Notice of Appeal with TAT on 28th September 2022.

MNL argued that:

  • Paragraph 1 of Part II of the First Schedule to the Excise Duty Act stated that only the service component for the provisions of the internet attracts Excise duty and the Act does not cover infrastructure, which is the hardware component and is charged separately from internet data services.
  • in demanding Excise duty, KRA’s consideration of infrastructure required for the provision of data services as within the definition of ‘internet data services’ is an overreach and is equivalent to saying that the telephones that will be required for telephone services are also subject to Excise duty since telephone services are excisable. It reiterated that the two components are different since whereas there are telephones (infrastructure) that are used to support the provision of telephone services, infrastructure supports the provision of internet services.
  • MNL had charged Excise duty on internet data services only as provided in law, and it had not separated the internet and infrastructure to reduce taxes.
  • infrastructure and internet data services are separate components of its services just like telephones are hardware needed to support the provision of telephone services, network towers fibre lines and local wireless equipment installed at the customers’ premises are infrastructure needed for the provision of internet data services.

KRA responded that:

  • MNL’s act of giving a breakdown to customers was meant to reduce the Excise fees payable by apportioning the internet service invoices by adjusting for cost of hardware, installation and other miscellaneous income and having no excise duty charged on them
  • data and data infrastructure are vital components of internet data services, and the two can not be separated as there is no ambiguity to the meaning of internet data services,
  • MNL’s attempt to split date and infrastructure is an apparent act of tax avoidance whose effect is to reduce MNL’s tax liability as just like KRA cannot separately charge water and the bottle container it comes in, the same cannot be done for the internet and its infrastructure.

In its ruling on 09/02/2024, the TAT observed that:

  •  the ensuing matter falls under Paragraph 1 of Part II of the Second Schedule to the Excise Duty Act provides excisable services and states :

“Telephone and internet data services shall be charged excise duty at a rate of twenty per cent of their excisable value.”

  • the Tribunal further drew an analogy of transport services provided by a transport company. Since a motor vehicle is used to provide transport services to the company’s clientele, KRA can not purport to charge excise duty on the motor vehicle using the argument that the two can not be distinguished from each other. Without a motor vehicle, a transport service can not be effected, yet the service provider can charge separately for infrastructural items such as fuel.
  • Infrastructure used to provide the internet data services is very distinct from the internet data services provided by MNL. Thus, the Tribunal found that MNL’s had satisfactorily proven that its charge for infrastructure is distinct and separate from the provision of internet data service.

As such, KRA lost



Excise Duty on Internet Data

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