The tax tribunal has allowed the taxman to collect Kes 643 million from a water company for failing to deduct tax when it paid Italian firm CMC Di Ravenna contracted to undertake the controversial Itare Dam project.
The decision has left the Central Rift Valley Water Development Agency on the receiving end of the Kenya Revenue Authority (KRA) after the Tax Appeals Tribunal dismissed an appeal by the agency, challenging KRA’s assessment that charged Sh643,394,426 in withholding tax demands.
“The assessment is based on the failure by the agency to deduct taxes when it was paying CMC Di Ravenna, an Italian company contracted to undertake the Itare Dam water supply project and Aspen International SPRL of Belgium that was contracted to undertake the Sabor Iten Tambach water supply project,” the authority said in a statement.
CMC Di Ravenna was declared bankrupt in 2019, after years of serious cash woes that hindered its undertaking of projects it had been contracted by the government.
Local suppliers, who distributed products to the firm have been crying foul over millions in unpaid bills. Further, banks have been chasing it over unpaid loans in the courts even as the taxman locked some of its assets to recover its taxes.
Currently, Absa bank is entangled in a tough legal battle with the company over a Sh585 million loan and is seeking to auction 98 of its vehicles.
In the case, which KRA has been handed a win, the authority argued that the two firms were not exempt from income tax in Kenya since the services they offered in the project were in the nature of management and professional services that are subject to withholding tax under the Income Tax Act.
On the other hand, Central Rift Valley Water Development Agency said that it was not responsible for making payments to the two foreign companies but was just an implementing entity that was inspecting the works and preparing interim payment certificates.
The tribunal, however, agreed with KRA’s assertion, finding that the two foreign companies were not exempt from income tax and that the agency ought to have included the amount to be withheld in the payment certificates it prepared but failed to do so.
This is another of the many wins the taxman has secured before the tribunal and the courts, scaling towards Sh14 billion just this year.
Last week, the authority got the go ahead to collect Sh107 million from the Kenya Commercial Bank (KCB), through its insurance agency, which offered consultancy services to KCB Risk Margin Fund (RMF).
KCB Insurance Agency Limited had appealed before the tribunal, contending that the taxman’s treatment of income earned from services provided to RMF as consultancy fees was erroneous, but the tribunal dismissed the appeal.
Since January, the authority has been securing win after win in its efforts to catch tax evaders, with the biggest of more than Sh9 billion having been in January