EACJ Appellate Division Affirms Suspension of 25% Excise Duty on Imported Glass Bottles into Kenya

The EACJ is established under the Treaty for the Establishment of the EAC as the judicial arm of the EAC regional economic block. Under the Treaty, the EACJ is mandated to, among others, ensure the adherence by Partner States to the rule of law and to the Treaty.

The First Instance Division of the EACJ is the first port of call for all references and applications lodged before it, with the Appellate Division sitting on appeal over decisions of the First Instance Division.

The First Instance Division Ruling
On 27 November 2020, the First Instance Division, sitting in Arusha, delivered a ruling temporarily suspending the disputed excise duty pending the determination of a reference filed by Tanzania’s Kioo Limited (Kioo) challenging its legality.

The ruling arose from an application in which ALN Kenya | Anjarwalla & Khanna successfully argued on Kioo’s behalf that:

1. the disputed excise duty was, at first glance, discriminatory and anti-competitive, contravening Kenya’s regional integration law obligations under the Treaty;
2. Kioo stood to suffer irreparable damage if the excised duty was not suspended as it would render Kioo’s glass products uncompetitive in the Kenyan market; and
3. The balance of convenience tilted in Kioo’s favour as it would be unjust to expose Kioo to the potentially ruinous effects of the excise duty.

On this basis, the First Instance Division temporarily suspended the 25 percent excise duty pending the determination of its legality.

Appellate Division Proceedings 
On 5 February 2021, Kenya’s Attorney General lodged an appeal against the ruling of the First Instance Division. In the appeal, the Government of Kenya sought to overturn the suspension of the excise duty on glass bottles imported into Kenya from EAC Partner States.

However, prior to the hearing of the appeal, the Parliament of Kenya took note of the First Instance Division’s ruling and enacted the Finance Act, 2021 to revoke the 25 percent excise duty. Effective 1 July 2021, the Excise Duty Act was amended to expressly exempt “glass bottles imported from any of the countries within the East African Community” from the disputed excise duty. The Appellate Division of the EACJ has now struck out the appeal by the Government of Kenya.

Key Take-Aways 
The Court’s decision has granted a reprieve to Kenyan importers of glass bottles from the EAC Partner States.

A direct consequence of the First Instance Division’s decision was to spur the Parliament of Kenya to introduce legislative measures to remedy the discriminatory and anti-competitive nature of the 25 percent excise duty imposed on glass bottles imported into Kenya.

The EACJ decision on this matter has also served as a caution to the EAC Partner States which have knowingly passed or are considering passing laws contravening integration obligations under the EAC Treaty and its protocols. In addition, national courts in the EAC Partner States are increasingly aware of the potentially discriminatory and anti-competitive effects of tax legislation. In both cases, for example, the Government of Kenya was constrained to reconsider plans to introduce a 30 percent excise duty on imported furniture that was introduced by Parliament in the Finance Act 2021.

Conclusion
The decisions by both divisions of the EACJ in this suit underline the essential role that regional courts such as the EACJ play in upholding the rule of law, advancing integration obligations under the EAC Treaty and resolving disputes on discriminatory and anti-competitive tax measures adopted by the EAC Partner States.

Should you require more information, please do not hesitate to contact Faith Macharia or Kenneth Njuguna.

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Contributors

1. Ikoha Muhindi, Associate
2. Elly Obegi, Associate