Tax Appeals Tribunal Upholds KRA’s Withholding Tax Demand Against M-Pesa Foundation

The Tax Appeals Tribunal has dismissed an appeal by the M-Pesa Foundation Charitable Trust (‘Mpesa Foundation’), challenging the decision by the Kenya Revenue Authority (KRA) to assess and demand payment of Kshs. 6,487,830.00 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 Mpesa Foundation to Safaricom PLC were contractual management or professional fees subject to Withholding Tax for deduction and remittance to the Authority at the time of payment.

In agreement with the 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 noted that payments made by the M-Pesa Foundation to Safaricom PLC for these services constituted Income for Safaricom PLC. The Tribunal held, “… 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.”

The law requires that 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 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 Kenya Revenue Authority.

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