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Tribunal slaps State firm with Sh643m tax bill

BUSINESS
By Dominic Omondi | August 16th 2021

A section of the stalled Itare Dam project in Kuresoi South Nakuru county.[Kipsang Joseph,Standard]

A government agency has been slapped with a Sh643.4 million tax bill for two multibillion-shilling dams, including the stalled Itare one in Nakuru. 

The Tax Appeals Tribunal directed the Central Rift Valley Water Development Agency under the Ministry of Water to pay the Kenya Revenue Authority (KRA) Commissioner of Domestic Taxes withholding tax for payment of services done on the two projects valued at Sh562.5 million, plus interest and penalties.

This is for the payment of services rendered by Italy’s CMC Di Ravenna and Belgium’s Aspen International SPRL for the construction of Itare Dam and Sabor-Iten Tambach Water Supply Project respectively.

The tribunal found that the contract between the water agency and the two contractors did not exempt the latter from withholding tax, but only customs and value-added tax (VAT).

“Accordingly, we find that the argument by the appellant (Central Rift Valley Water Development Agency) was exempt from withholding tax is baseless and unfounded as the only exemptions granted from the evidence before us are in respect of VAT and customs duty,” said the five-bench tribunal in a ruling made on June 4, 2021.

The water agency had appealed against KRA’s assessment that they pay Sh643 million, which they should have withheld for payment to the two contractors. The agency argued that it was condemned unheard and that it was their contractor’s parent company that made payments.

It is an argument that the tribunal rejected, noting that as the employer of the two contractors, the agency was responsible for preparing payment certificates and as such, was also to withhold the money to be remitted to KRA.

“The appellant was bound to withhold taxes due on account of the contractor even if the contractor had not been paid as at that time because the obligation to make payment had arisen,” the tribunal ruled.

CMC Di Ravenna clinched the tender to build the Sh35 billion Itare Dam in 2014, with the works projected to end in 2020.

Actual works at the dam started in 2017 and are yet to be completed.

The Sabor-Iten Project was signed on December 19, 2012, between Central Rift Valley Water Development Agency and the contractor Aspac International.

In October, the following year, Treasury signed a financing agreement with Belfius Bank of Belgium for the implementation of the project.

The law requires that persons who are not permanent residents of Kenya be subjected to a withholding tax on management, professional and training fees at 20 per cent

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