The Kenya Income Authority (KRA) has misplaced a bid to assert Sh64 million from a Chinese language agency that constructed the usual gauge railway (SGR) line.
KRA was demanding tax on allowances paid to cops who had been deployed to man the multibillion-shilling venture.
In a judgment in December 2019, the Tax Appeals Tribunal dominated in favour of KRA, a call that has now been quashed by the Excessive Court docket following an enchantment lodged by the China Highway and Bridge Company (CRBC).
The contractor argued that KRA was trying to develop the scope of Pay As You Earn (PAYE) to the place the employer-employee relationship doesn’t exist.
In his ruling, Justice David Majanja agreed with the agency saying CRBC was not an employer of the cops and was due to this fact not underneath statutory obligation to deduct and remit any tax to KRA.
In its enchantment, the Chinese language agency had argued that the demand for Sh64,716,060 by KRA was unlawful since CRBC had been contracted to construct the railway whereas the State provided safety by deploying cops.
It additional argued that the officers remained members of the Nationwide Police Service and their employment or phrases of providers remained with the NPS.
The Excessive Court docket dominated that the tax tribunal erred in reasoning that the allowances paid to cops was earnings for “providers rendered” and was due to this fact liable to tax and topic to PAYE.
“The clear language of part 37 (1) of the Revenue Tax Act refers to: “An employer paying emoluments to an worker”. It could due to this fact be improper to suggest or learn into this provision every other relationship apart from an employer or worker. To take action violates the clear phrases of the statute. It additionally violates the ideas of interpretation of tax statutes,” mentioned Justice Majanja.
CRBC advised the court docket that it was contracted by Kenya Railways Company to construct the SGR from Mombasa to Nairobi, which commenced in 2014 and accomplished in Could 2017.
The corporate asserted that one of many situations of the contract was that Kenya Railways would upon request and at a value to it to offer affordable extra help in issues of safety.
It contended that its sole accountability was to assemble the SGR and that safety providers weren’t a part of its contractual obligation.
Nonetheless, the contractor mentioned that on June 30, 2017, KRA’s commissioner of home taxes issued it with a requirement letter from tax evaluation for 2014 to 2016 claiming that the allowances paid to the cops amounted to salaries and that it should have remitted PAYE on the identical.
CRBC objected in its letter dated July 27, 2017 however the Commissioner rejected the objection and on September 19, 2017 confirmed the tax demand.