State sued over Sh188b tax waivers to firm

A legal suit has been initiated against the government challenging the legitimacy of a statute that has granted more than Sh188 billion in tax exemptions to Blue Nile Rolling Mills Ltd. 

In documents filed before Milimani High Court, lawyer Apollo Mboya faults the government for unfairly introducing Special Operating Framework Arrangements (SOFA).

This, he argued, has allowed the steel manufacturer to avoid paying hundreds of billions in taxes, creating an uneven playing field in the steel industry and depriving the government of revenue.

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

However, Mboya argues that the exemptions granted to Blue Nile Rolling Mills Ltd, which include relief from Value Added Tax, Customs Duty, Import Development Fund , Railway Development Levy, and Export Investment and Promotion Levy, as well as a reduced corporate tax rate of 10 percent, were applied arbitrarily and without proper legal authority.

Mboya’s petition challenges the constitutionality and fairness of these exemptions, asserting that they were granted without adequate oversight from the relevant Cabinet Secretaries for Treasury and Trade.

The lawyer says that the Thika-based company was exempted from paying taxes following an agreement signed in March 2020.

It states that the firm was to invest $19 million in putting up a high-speed galvanising factory, create direct jobs for 300 people, empower 50 women in the local community.

Firm was also to undertake technology transfer.

He claims that the company during the signing of the agreement with the government manipulated its financial records and misrepresented information to obtain tax exemptions, giving it an unfair advantage in the marketplace. 

“The information provided by Blue Nile Rolling Mills Ltd was entirely false as can be deciphered from an Environmental Impact Assessment report of January 2018 conducted by the firm,” Mboya stated in his court papers.

Further, the petitioner reveals that the firm’s investment was Sh700 million which translates to $5,384,615, and it was to employ only 20 permanent and pensionable employees as per the report.

The petitioner also argues that on July 13, 2020, the Trade Commissioner recommended the remission of VAT in respect of raw materials, intermediary products, consumables, and spare parts being imported or purchased locally by the company.

“This arbitrary and unjustified exemption further orchestrated the loss of government revenue estimated at Sh 27,301,236,443.88 that was VAT foregone on account of the exemption,” court papers read.

Mboya argues that this preferential treatment undermines the integrity of the country’s tax system and provides an unjust competitive advantage to the firm.

He says that the tax relief has enabled the firm to lower its production costs — by 47.5 percent for billets and 62.5 percent for wire rods — allowing it to sell its products at prices much lower than its competitors. 

This competitive edge, Mboya argues, threatens the viability of over 99 other steel manufacturers, potentially leading to the loss of more than 20,000 jobs and a Sh33.5 billion reduction in government revenue from these businesses.

Mboya is seeking an injunction to halt the application of the SOFA framework and invalidate the tax exemptions. 

Justice Bahati Mwamuye yesterday ordered the Attorney General, Cabinet Secretaries for Treasury and Trade together with Permanent Secretaries, and Kenya Revenue Authority to file responses by September 6.

The case will be mentioned on October 9.

“If this framework remains unchallenged, Blue Nile Rolling Mills will continue to benefit from an unfair advantage at the expense of other manufacturers and taxpayers,” Mboya warns.

He also raises concerns about potential misuse of the framework, suggesting that other entities might restructure their businesses to qualify for similar exemptions, leading to broader issues of fairness and transparency.

Justice Bahati Mwamuye yesterday ordered the Attorney General, CSs Treasury and Trade together with PSs and Kenya Revenue Authority to file their responses to the case by September 6, 2024.

The case will be mentioned on October 9, 2024.