KRA in bitter tax row with Chinese firm over Ksh64 million police allowances

Police officers manning the construction of the Standard Gauge Railway. [Photo: Standard]

Chinese firm constructing the Standard Gauge Railways, China Roads and Bridges Corporation (CRBC) is embroiled in a tax row with the Kenya Revenue Authority (KRA).

KRA is demanding Ksh64 million from CRBC for tax on allowances paid out to police officers manning the project.

The case which has been filed at the High Court has CRBC arguing that the Ksh64 million tax demand by KRA is illegal on account that it was not part of the agreement.

CRBC adds that the Kenyan government had the sole mandate to pay out the allowances to the police officers who guarded the project and not the Chinese firm.

“The police officers are not employees of the appellant (CRBC) as such, the National Police Service should bear the responsibility of the deduced Pay As You Earn (PAYE),” the Chinese firm argued according to the Standard.

However, KRA in its reply argues that CRBC by virtue of being an employer had the onus of deducting tax and submitting it to the taxman because the police officers offered services for the firm.

KRA made the tax demand after reviewing tax records for CRBC between 2014 and 2016.

The taxman is said to have written to the Chinese firm in 2017 and they agreed that supplies to its workers be taxed at 25 per cent. Thus, the firm was to pay Sh199 million as corporation tax.

On insurance expenses, KRA capped CRBC tax at Ksh932 million which it was to remit while the interest charged by CRBC to Kenya for locomotives and rolling stocks stood at Sh230 million.

KRA also stated that Ksh2.4 billion was withholding tax and a further Ksh161 million as additional PAYE.

Taxed at a rate of 20 per cent for the allowance paid out to the police, KRA asked for Ksh44 million from CRBC and a penalty of Ksh11 million and Ksh9 million interest.

In total, VAT stood at Ksh3 billion.

CRBC only offset Ksh800 million out of the Ksh3 billion which KRA demanded from the firm as net principal tax.