The contractor of the Standard Gauge Railway (SGR) is embroiled in a legal battle with Kenya Revenue Authority (KRA) over tax on allowances paid to police officers who were manning the project.
China Road and Bridge Corporation (CRBC) in the case filed before the High Court argues that the Sh64 million demand by KRA is illegal as the agreement between it and Kenya was that it would build the railway while the Government offers security.
CRBC argues that it did not employ police officers who had been assigned to guard rail items during construction adding that the money paid to the officers as allowances ought to be deducted from National Police Service Commission (NPC).
“The police officers are not employees of the appellant (CRBC) as such, the National Police Service should bear the responsibility of the deduced Pay As You Earn (PAYE),” the Chinese firm argued.
But KRA argues that it was the responsibility of CRBC to deduct the taxes and remit the same. It claims that the contractor was an employer on account of the services rendered by the police.
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“The appellant contends that there are no contractual services between itself and the police officers by the virtue of the fact that the appellant did not determine the work by the police officers and they were not answerable to the appellant,” CRBC lawyer Prof Albert Mumma argued.
The case stems from KRA investigations on CRBC tax payments between 2014 to 2016. CRBC claims that KRA’s demand increased its PAYE to Sh292 million.
On June 30, 2017, KRA wrote to the Chinese firm after reviewing its tax records. KRA went through CRBC’s corporation tax and the two agreed that supplies to its workers be taxed at 25 per cent. The firm was to pay Sh199 million as corporation tax. Insurance expense yielded Sh932 million tax while the interest charged by CRBC to Kenya for locomotives and rolling stocks attracted Sh230 million. KRA tabulated Sh2.4 billion as withholding tax and Sh161 million as additional PAYE. [Kamau Muthoni]
Cash allowances paid to the police was taxed at a rate of 20 per cent; KRA demanded Sh44 million. The amount attracted Sh11 million penalty and Sh9 million interest while VAT was Sh3 billion.
CRBC paid Sh800 million which was deducted from the total amount due. According to KRA’s letter attached to court documents, CRBC owed it Sh3 billion net principal tax. CRBC boss Li Qiang wrote to KRA objecting to pay the disputed tax on police allowances.