The Kenya Revenue Authority (KRA) suffered a setback after its demand for a Sh78.5 million withholding tax from the Kenya Ports Authority from expenses on phase two of the Mombasa Port Development Project was dismissed by the Tax Appeals Tribunal.
In its judgement, the Tribunal chaired by lawyer Nyongesa Wafula allowed the appeal by Kenya Ports Authority (KPA) against KRA’s decision which it set aside.
The Tribunal further ruled that the taxman was not justified in raising the withholding tax assessment.
The dispute arose from KRA’s determination that income earned by Japan Port Consultants Ltd (JPCL) for 2020-2022 on contractual consulting services was subject to withholding tax on income of a non-resident accrued and derived in the country.
KRA demanded the tax, arguing that it was due from payments made to KPA on its behalf.
The taxman said the withholding tax due was Sh25.5 million, Sh20.5 million, and Sh32.4 million for the years 2020,2021 and 2022, respectively.
The Tribunal noted that KRA’s argument that KPA ought to have advised its contractor or development partner to withhold income tax borders on an absurdity.
It also ruled that failure by KPA to advise a development partner who has not been established as an agent to withhold income paid to a non-resident contractor was not a valid reason for KRA to demand the same from KPA.
“No part of the law provides that the appellant ought to have advised a foreign non-resident development partner to withhold income tax on money paid to a non-resident contractor,” ruled the Tribunal.
It also agreed with KPA’s argument that there was no way for it (KPA) to withhold the tax on money paid directly to the non-resident contractor from the non-resident development partner.
The project was conceived from a loan agreement between the Government of Japan. KPA said it did not receive any of the loan disbursements.
Unlock a world of exclusive content today!Unlock a world of exclusive content today!
