Rédaction Africa Links 24 with Daily Nation
Published on 2024-02-07 05:00:00
The Kenya Revenue Authority (KRA) has recently been involved in a dispute with the ports agency over taxes related to the procurement of cargo handling equipment. This dispute resulted in a loss of Sh2 billion for KRA, as the Tax Appeals Tribunal dismissed their claim of Sh1,993,582,700 in withholding tax plus penalty and interest. The dispute concerned two contracts for the supply of a tugboat and cranes by a foreign contractor to the Kenya Ports Authority (KPA).
The Tribunal agreed with KPA’s assertion that it was supplied with goods—a tug boat and cranes— and not services, which would have attracted a withholding tax. The port authority maintained that it did not make payments for professional, management, or training fees, and hence did not need to pay withholding tax. Additionally, since the equipment was fully manufactured outside Kenya, it did not attract income tax as the income was not derived in Kenya.
According to the ruling, foreign suppliers pay a final withholding tax of 20 percent for training, management, or professional services, while residents pay a withholding tax of five percent. Withholding tax is a type of income tax that is withheld by the payer of the service and remitted to the KRA within five days.
KRA had argued that KPA contracted foreign suppliers to undertake turnkey projects, which involve designing, manufacturing, supplying, installing, testing, and commissioning the equipment. They claimed that the projects had elements of training and management, which should attract a withholding tax. However, KPA maintained that none of the equipment procured was tailor-made uniquely or specifically by the manufacturers, which would have amounted to a service. Instead, all design and manufacturing were done in the country of origin and delivered fully built.
The ruling sheds light on the complexities of withholding tax laws and their application in the procurement of goods and services. The introduction of new withholding tax laws in the Finance Act 2023, such as the five percent withholding tax on sales promotion, marketing, advertising services for residents and digital content monetization, further adds to the complexity.
Additionally, the Medium Term Revenue Strategy 2023 outlines the government’s plan to introduce a final withholding tax of five percent on all farm produce delivered to co-operatives and other organized groups. It is evident that withholding tax is not only a tool for revenue collection but also for monitoring and assessing the value of transactions undertaken, which can inform decisions to impose other final income taxes.
Failure to deduct or withhold and remit to the KRA attracts penalty and interest, with the penalty for late payment of withholding tax being five percent of the tax due. The ruling and the introduction of new withholding tax laws highlight the complexities and challenges in the application and enforcement of tax laws in Kenya.
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