Government sued for Sh188 billion tax relief for companies

A lawsuit has been filed against the government, challenging the legality of a decree granting Blue Nile Rolling Mills Ltd. more than Sh188 billion in tax exemptions.

In documents filed at the Milimani High Court, lawyer Apollo Mboya accused the government of unfairly introducing the Special Operating Framework Arrangement (SOFA).

He believes this has allowed steelmakers to evade paying hundreds of billions of dollars in taxes, created an unfair competitive environment in the steel industry and reduced government revenue.

The framework was established in 2020 to provide tax breaks to stimulate industrial growth.

Mboya, however, argued that the exemptions granted to Blue Nile Mills Limited, including exemptions from value added tax, customs duty, import development fund, railway development levy, export investment and promotion levy, and reduced corporate tax rate of 10 percent, were imposed arbitrarily and without proper legal basis.

Mboya’s petition challenged the constitutionality and fairness of the exemptions, claiming they were granted without adequate oversight by the relevant finance and trade cabinet ministers.

The lawyer said that under the agreement signed in March 2020, the Thika-based company was exempted from paying taxes.

The company said it would invest $19 million to build a high-speed galvanizing plant, creating direct employment for 300 people and helping 50 women in the local community.

The company will also undertake technology transfer.

He claimed the company manipulated financial records and misrepresented information when signing agreements with the government to obtain tax exemptions, giving it an unfair advantage in the market.

“The information provided by Blue Nile Rolling Mills Ltd was completely false, as can be seen from the environmental impact assessment report carried out by the company in January 2018,” Mboya said in court documents.

Furthermore, the petitioner disclosed that the company’s investment amounted to Sh700 million, equivalent to $5,384,615, and according to the report, it would only employ 20 permanent and retired employees.

The petitioner also stated that on July 13, 2020, the Trade Commissioner recommended exemption of VAT on raw materials, intermediate products, consumables and spare parts imported or procured locally by the company.

“This arbitrary and unreasonable exemption further resulted in the government losing approximately Sh27,301,236,443.88 in VAT revenue due to the exemption,” the court document said.

Mboya argued that the preferential treatment undermined the integrity of the country’s tax system and provided the company with an unfair competitive advantage.

He said the tax cuts have reduced the company’s production costs (47.5% for billets and 62.5% for wire rods), allowing it to sell its products at much lower prices than its competitors.

Mboya believes that this competitive advantage threatens the survival of more than 99 other steel manufacturers, which could lead to the loss of more than 20,000 jobs and a reduction of Sh33.5 billion in government revenue from these companies.

Mboya is seeking an injunction to stop the implementation of the SOFA framework and invalidate the tax exemption policy.

Justice Bahati Mwamuye yesterday ordered the attorney general, finance and trade ministers, the permanent secretary and the Kenya Revenue Authority to submit their responses by September 6.

The case will go to trial on October 9.

“If this framework goes unchallenged, Blue Nile Rolling Mills will continue to enjoy an unfair advantage to the detriment of other manufacturers and taxpayers,” Mboya warned.

He also expressed concern that the framework could be abused, suggesting that other entities might restructure their operations to obtain similar exemptions, leading to wider issues of fairness and transparency.

Judge Bahati Mwamuye yesterday ordered the Attorney General, the Kenyan Ministries of Finance and Trade, as well as the Public Service and Kenya Revenue Authority to respond to the case by September 6, 2024.

The case will go to trial on October 9, 2024.