The Tax Appeals Tribunal has dismissed an appeal by the M-PESA Foundation Charitable Trust (M-PESA Foundation), challenging the decision by KRA to assess and demand payment of Ksh. 6,487,830 of Withholding Taxes on the re-charge costs.
The M-PESA Foundation had entered into an agreement with Safaricom Plc, under which Safaricom Plc seconded its employees to the Foundation and charged it for the employment costs incurred. This arrangement was considered as a ‘service provider’ and ‘service recipient’ relationship, with the services provided being classified as management and professional in nature.
KRA contended that the payments made by M-PESA Foundation to Safaricom Plc were contractual management or professional fees. According to KRA, this was subject to Withholding Tax for deduction and remittance to the Authority at the time of payment.
According to the Kenyan law, whenever a person is paying for a contractual service including managerial, technical, agency, contractual, professional or consultancy services, they are obligated to withhold 5% of the payment and remit the withheld amount to KRA.
The law also requires that when making payments for contractual services, including managerial, technical, agency, professional, or consultancy services, individuals are obligated to withhold 5% of the payment and remit the withheld amount to the KRA.
In agreement with KRA’s position, the Tax Appeals Tribunal observed that a contract existed between the M-PESA Foundation and Safaricom PLC for the provision of employment services. The Tribunal further noted that payments made by the M-PESA Foundation to Safaricom Plc for these services constituted income for Safaricom Plc.
A statement released by the Tribunal read in part, “… that the payment was correctly treated as an income to Safaricom since it was a payment made in exchange for Safaricom providing a service. Withholding Tax was therefore deductible on the payment.”