KRA wins Sh33m tax case against Kenya Nut company

In Summary

• The judges stated that it ought to have made provision in the contract between them and the agents to ensure that at the point the commission was paid, withholding tax should have been factored in and thereafter remitted the same to KRA.

The KRA headquarters at the Times Towers.
The KRA headquarters at the Times Towers.
Image: FILE

The Court of Appeal last Friday ruled in favour of Kenya Revenue Authority in an appeal filed against the decision of the High Court against Kenya Nut Limited.

In a statement released on Monday, KRA's Commissioner of Legal Services Paul Matuku said that the dispute was whether Kenya Nut Limited should pay withholding tax on commissions paid to its overseas agents amounting to Sh33.5 million.

"The High Court had quashed the assessment Notice of 19th August 2008 demanding Sh33,534,855 Withholding tax and stopped the enforcement of the said demand," Matuku said.

He added that KRA being aggrieved by this decision, filed an appeal.

Court of Appeal Judges William Ouko, Daniel Musinga and Sankale ole Kantai in allowing the appeal, found that given the company’s exposure and involvement in international trade, it had the capacity to device practical technique, methods and systems that would ensure collection and remission of the Withholding tax from source.

The judges stated that it ought to have made provision in the contract between them and the agents to ensure that at the point the commission was paid, withholding tax should have been factored in and thereafter remitted the same to KRA.

"The Court of Appeal also held that with regard to withholding tax due from a non-resident person not having a permanent establishment in Kenya, but trading with a Kenyan entity, it becomes the business of that entity to ensure that the tax is deducted from such payment and remitted to KRA," he said.

The court also found that it was reckless on the part of the company to enter into a contract with foreign agents, which allowed foreigners to deduct and retain at source their commissions without putting in place a mechanism of taking into account withholding tax and that this was intended to deny the country revenue.

According to the statement, the Court of Appeal also found that interest and penalties were chargeable on the withholding tax subject to the applicable rate under the law for the tax period 2000-05.

"The Court of Appeal held that the learned Judge of the High Court erred in allowing the Notice of Motion dated 7th October 2008 and issuing orders of certiorari and prohibition against KRA.

"Following the judgement, KRA is at liberty to proceed and enforce collection of the taxes," he concluded.