The taxman has lost a Sh2 billion tax claim from the Kenya Ports Authority (KPA) over the procurement of some cargo handling equipment between 2018 and 2022.
In a ruling delivered on January 26, the Tax Appeals Tribunal dismissed the KRA’s assessment of Sh1,993,582,700 in withholding tax plus penalty and interests, concerning two multi-billion shillings contracts for the supply of a tugboat and cranes by a foreign contractor to the ports authority.
The six-bench tribunal agreed with the KPA’s assertion that it was supplied with goods—a tug boat and cranes— and not services for which the ports authority would have made payment for professional, management, or training fees which would then have attracted a withholding tax.
Foreign suppliers pay a final withholding tax of 20 percent for training, management, or professional services. A resident pays 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.
Moreover, because the equipment was fully manufactured outside Kenya, they could not attract income tax as the income was not derived in Kenya.
“Having established that the contracts were for equipment, the Tribunal finds that no withholding tax was chargeable. In light of this, the Tribunal finds that the Respondent (KRA) erred by charging withholding tax to the subject contracts,” said the tribunal, which was chaired by Justice Erick Nyongesa Wafula.
The KRA argued that the KPA contracted foreign suppliers to undertake two contracts to design, manufacture, supply, install, test, and commission the operation of a tugboat, a multipurpose boat, and cranes at the port of Mombasa.
