The tax appeals tribunal has directed the Kenya Revenue Authority (KRA) to refund KLM Royal Dutch Airlines a sum of Sh2.7 million, which the airline has been seeking since 2017.

The tribunal's ruling emphasized the importance of justice and fairness in handling refund requests, especially after the KRA admitted a system failure in processing refunds for March 2017.

The airline had initially submitted a refund claim for Value Added Tax (VAT), only to have it dismissed by the KRA on the grounds that the refund had been utilized for a non-existent VAT liability in April 2017.

However, KLM Royal Dutch Airlines filed an appeal, arguing that their business operations were zero-rated and that the refund claim had been submitted within the required timeframe.

In the recent ruling, the tribunal chaired by Robert Mutuma concluded that the appellant's refund claim for March 2017 was indeed payable.

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“In view of the foregoing, the Tribunal finds that the Appellant’s refund claim for the month of March 2017 is payable,” Mutuma said.

The tribunal took into account the airline's submission that it offers zero-rated services, primarily transporting passengers on international flights.

KLM Royal Dutch Airlines further contended that the KRA had disregarded the recommendations outlined in the OECD Guidelines on the neutrality of VAT before rejecting their refund claim.

According to the airline, the OECD guidelines explicitly support the refund of input VAT incurred by foreign businesses, such as themselves.

These guidelines have been relied upon in various cases involving the KRA, specifically regarding the interpretation of VAT laws.

By not considering the recommendations put forth by the OECD, KLM Royal Dutch Airlines claimed that the KRA had made an erroneous decision in rejecting their claim.

The tribunal's ruling has compelled the KRA to refund the airline's VAT claims within 90 days from the date of judgment.

This decision underscores the importance of adhering to international guidelines and ensuring fair treatment for businesses operating within Kenya.