The Tax Appeal Tribunal has allowed Kenya Revenue Authority (KRA) to demand Sh643 million tax from the Central Rift Valley Water Development Agency.
This is after the Tribunal dismissed a tax appeal case filed by the Central Rift Valley Water Development Agency to challenge an assessment of withholding tax amounting to Sh643,394,426.
The case was a result of the Agency’s failure to deduct taxes when it was paying two foreign companies contracted with the management of dams in the country.
The companies are CMC Di Ravenna, an Italian company contracted to manage the Itare Dam Water Supply Project and Aspen International SPRL of Belgium that was contracted to undertake the Sabor Iten Tambach Water Supply Project.
“Where the project is not income tax exempt as in this case, and the lender does not bear the burden of deduction, then the National Treasury would have to budget to provide the Appellant with the funds to settle withholding taxes due; after all this is bargain made by the Government in order to fund the development projects,” part of the tribunal’s judgement read.
The tribunal also directed each party to bear its own costs.
In the case, KRA argued that the two foreign companies were not exempt from Income Tax and the services offered in the project were subject to Withholding Tax under the Income Tax Act.
On the other hand, Central Rift Valley Water Development Agency maintained that it was not responsible for making payments to the two foreign companies.
The agency added that it was just an implementing entity responsible for the inspection of the works and preparing payment certificates.
The case was determined by a five-member tribunal chaired by Mahat Somane.
Ongoing construction works at Itare Dam were halted after KRA called for the auction of equipment used by the previous developer, CMC di Ravenna.
At the time of pausing the construction, CMC di Ravenna had completed only 30 per cent of the work at Itare dam: the foundation, treatment plant, outlet tunnel and pipeline, amounting to Sh11 billion.