Motor dealer DT Dobie Kenya, now in liquidation, has been ordered to pay Sh1.1 billion in customs duty on imported vehicle parts after the National Treasury failed to honour its promise to settle the tax.
The Tax Appeals Tribunal dismissed the company’s appeal against the Kenya Revenue Authority (KRA), ruling that the Treasury’s undertaking did not extinguish the importer’s legal obligation to pay customs duty.
The dispute stemmed from duty-free imports of semi-knocked down (SKD) vehicle kits under a 2016 government programme aimed at reviving local vehicle assembly.
SKD kits are imported vehicle parts assembled locally. Unlike completely knocked down (CKD) kits, which qualified for duty-free importation under the customs regime, SKD kits were never exempted by law.
The tribunal upheld KRA’s review decision confirming customs duties of Sh1.11 billion, finding that no legislation had ever granted SKD imports a customs duty exemption.
The dispute originated under the Kenya Industrialisation Transformation Programme, through which the government sought to revive local vehicle assembly.
In 2016, the government negotiated with Volkswagen South Africa to re-establish Volkswagen assembly in Kenya after nearly four decades. Later that year, the government, Volkswagen South Africa and DT Dobie signed a Letter of Commitment appointing D.T. Dobie as Volkswagen’s local implementation partner.
The programme involved assembling Volkswagen Polo Vivo vehicles at the Kenya Vehicle Manufacturers (KVM) plant in Thika using SKD kits and establishing a training centre to develop local automotive skills.
To facilitate the project, the National Treasury instructed KRA to clear SKD imports without collecting customs duty immediately and undertook to pay the taxes pending amendments to revenue laws that would align the treatment of SKD kits with CKD kits. KRA implemented the arrangement by issuing exemption codes for the imports.
However, the promised legal amendments were never enacted.
Following a post-clearance compliance review, KRA in September 2025 demanded Sh1.39 billion in unpaid customs duties. After D.T. Dobie objected, the taxman removed declarations falling outside the statutory audit period and reduced the assessment to Sh1.11 billion, covering imports made between September 2020 and May 2025.
DT Dobie argued that it imported the kits only after the government committed to granting duty relief and that KRA had consistently implemented the arrangement by clearing the consignments duty-free for several years.
The company said it had invested in local assembly in reliance on Treasury’s undertaking and argued that KRA had breached its legitimate expectation by later demanding payment.
The tribunal rejected the argument, holding that administrative assurances could not replace legislation.
“The exemption from customs duty is a creature of statute,” the tribunal ruled, adding that “the anticipated legal framework never came into being.”
It added: “To date, therefore, SKDs are not exempt from customs duty.”
The judges held that the duty-free clearance merely deferred payment and did not extinguish the tax liability.
“The duty was always due; what was deferred was its payment, not its imposition,” the ruling stated.
The tribunal further found that the National Treasury’s undertaking did not transfer the statutory obligation to pay customs duty from the importer.
“The appellant’s remedy, if any, for the National Treasury’s failure to meet its promise lies against the National Treasury. It does not lie in resisting a duty that the EACCMA fixes upon the appellant as owner,” the tribunal said.
It noted that under the East African Community Customs Management Act (EACCMA), import duty exemptions are available only where expressly provided by law or under the East African Community Common External Tariff.
“Exemptions are to be strictly construed, and the party asserting an exemption bears the burden of bringing the goods squarely within the exempting provision,” the tribunal said.
On legitimate expectation, the tribunal ruled that no public authority could create a tax exemption through administrative action where Parliament had not enacted one.
“There can be no legitimate expectation against clear provisions of the law,” it held.
The tribunal also dismissed DT Dobie’s claim that the assessment had been issued outside statutory timelines, finding that KRA had already excluded declarations falling beyond the five-year limitation period before confirming the final assessment.