NAIROBI, Kenya, Sep 5 – Kenya Revenue Authority (KRA) has won a tax claim against M-Pesa Foundation amounting to Sh6.5 million.
This comes after the Tax Appeals Tribunal dismissed an appeal by the M-Pesa Foundation, a charitable arm of Safaricom, to quash KRA withholding taxes demand.
The M-Pesa Foundation entered into an agreement with Safaricom, where the latter seconded its employees to the Foundation.
This arrangement was considered 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 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 for the provision of employment services.
The Tribunal noted that payments made by the M-Pesa Foundation to Safaricom for these services constituted an income for the telco.
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 percent of the payment and remit the withheld amount to KRA.
