KeNHA wins Sh670m tax row against KRA

Samwel Kumba, KeNHA Deputy Director Corporate Communications addresses the media at the Ole Sereni Bypass Interchange
[Elvis Ogina, Standard]

Kenya National Highways Authority (KeNHA) has won a Sh670 million tax battle against Kenya Revenue Authority (KRA).

In his judgment, Commercial Court Judge Julius Ng'arnga'r upheld Tax Appeals Tribunal's verdict that KRA cannot demand Withholding Income Tax from the Authority for works done by foreign companies.

"I find that the pronouncements of the tribunal were lawful to the extent that the respondents were not supposed to settle the contested taxes. I will therefore not interfere with those findings. Accordingly, the appeal lacks merit and it is dismissed. I however direct each party to bear its own costs of the appeal," ruled Justice Ng'arng'ar.

According to the judge, it was unfair and irrational for KRA to push KeNHA to deduct the tax from a non-resident development partner and a foreign contractor while the money was being paid directly to those companies.

KRA went after KeNHA following the construction of two road projects; the Kapchorwa-Saum- Kitale road and Eldoret Bypass which was a project under the Department of Infrastructure, and implemented by China State Construction Engineering Corporation, China Wu Yi Ltd, Abdul Mullick Associates and Sari Consulting.

Late payment

The other one was implemented by Zhongmei Engineering Group and Abuljebain Engineering Consulting Office.

KRA was seeking Sh532 million as Withholding Income Tax on foreign consultant, Sh56 million interest of late payment and a reverse Value Added Tax worth Sh68 million.

It argued that on January 12, 2016, the National Treasury advised it that the construction of the Nuno-Modogashe-Road was an official aid funded project financed by the Arab Bank for Economic Development in Africa, the Kuwait Fund for Arab Development, SFD and ADFD.

In its view, that letter did not exempt Withholding Income Tax or Income Tax. According to KRA, KeNHA ought to have advised the National Treasury to deduct the tax and remit the same on its behalf. On the other hand, KeNHA stated that the projects were officially declared aid funded by the Treasury. It asserted that the contested tax was to be deducted at the source emanating from payments made to the supervising consultant.

KeNHA argued that a reading of the Income Tax together with the National Treasury's circular no. 15/2019 exempted Withholding Tax under the Income Tax having been expressly provided for under the financing agreement between government of Kenya and Kuwait Fund for Arab Economic Development.