Base Titanium ordered to pay KRA Sh23.3m withholding tax

The Tax Tribunal has upheld a decision by Commissioner of Domestic Taxes (CDT) to charge mining company Base Titanium a withholding tax (WHT) of Sh23.3 million for the year 2021.

The tribunal led by Justices Robert Mutuma, Delilah Ngala, Mutiso Makau, Timothy Vikiru and Jephthah Njagi said the taxman was justified in demanding withholding tax at 20 per cent in respect of payments made to Wogen Pacific, a subsidiary of the mining giant.

"Consequently, the tribunal finds that the respondent (Commissioner of Domestic Tax) was justified in demanding withholding tax at 20 per cent in respect of payments made to Wogen Pacific," said Justice Mutuma.

CDT accused Base Titanium of withholding payment service fees at the rate of 5.625 per cent to its service providers compared to the statutory rate provided under the Income Tax Act.

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In their appeal, Base Titanium accused CDT of adjusting the WHT rate applicable to specific transactions declared under the Voluntary Tax Disclosure Programme (VTDP) from 12.5 to 20 per cent.

The company said KRA's actions were a violation of the sanctity of tax procedure by coming back for a second peak on issues that have already been closed.

It said that for the period January 2019 to January 2022, it applied WHT at the rate of 5.625 per cent on the commissions but later disclosed unpaid WHT liabilities relating to the commissions at the rate of 12.55 per cent under the VTDP.

Base Titanium said it reviewed its tax records for the periods January 2019 to January 2022 in relation to WHT and proceeded to settle the principles of WHT of Sh220,681,478.

The mining company stated that it entered into an ilmenite sales agreement in 2015 with Wogen Pacific Company, incorporated in China, and made several payments for commissions, distribution, marketing, and sales.

The company said that in taking advantage of the VTDP, it disclosed its unpaid tax liabilities relating to WHT on the commission paid to Waggon Pacific as provided for under Section 37D of the Income Tax Act (ITA).

The mining company, that has wound up operations in Kenya, said that the taxman is barred in law from collecting WHT in respect of liabilities relating to Base Resources for the 2021 year of income.

Base Titanium said KRA erred in law by demanding WHT in respect of the payments made to Waggon Pacific at the rate of 20 per cent contrary to the provisions of Paragraph 15 of the Ninth Schedule to the Income Tax Act.

The company said KRA's re-audit of the period in question was procedurally unfair, unjust, in bad faith, and malicious and amounted to a violation of their right to fair administrative action as protected under Article 47 of the Constitution of Kenya.

It said that the KRA's action to confirm and approve their liability and payment for the period July 2020 to January 2022 was an indication that they were satisfied that the tax liability for the period was properly disclosed.

In their defence, KRA said that the VTDP program does not in any way close the window for them to undertake an audit on the tax affairs of Base Titanium.

KRA said the VTDP was time bound for disclosures starting from 2015 to 2020, which meant anything outside that period was not covered under VTDP.

The taxman stated that the dispute before the Tribunal is for the period 2021-2022, which was neither covered under VDTP nor was there an approval for Base Titanium. KRA maintained that VTDP was used as an incentive to encourage taxpayers to disclose and pay taxes.