Kenya Revenue Authority (KRA) is demanding KSh643 million tax after Tax Appeal Tribunal dismissed a tax appeal filed by Central Rift Valley Water Development Agency.
The agency was challenging an assessment of withholding tax amounting to the aforementioned amount.
The assessment is based on the failure by the agency to deduct taxes when it was paying CMC Di Ravenna, an Italian company contracted to undertake the Itare Dam and Aspen International SPRL (Belgium) that was contracted to undertake the Sabor Iten Tambach project.
KRA argued that the two foreign companies were not exempt from income tax in Kenya and the services offered in the project were in the nature of management and professional services that are subject to withholding tax under the Income Tax Act.
On its part, Central Rift Valley Water Development Agency argued that it was not responsible for making payments to the two foreign companies but was just an implementing entity that was inspecting the works and preparing interim payment certificates.
The Tribunal, however, found that the two foreign companies were not exempt from income tax and that the agency ought to have included the amount to be withheld in the payment certificates it prepared but failed to do so.
While dismissing the appeal, the tribunal further held that KRA was right in demanding the assessed taxes of KSh643,394,426.
The government was in January mulling reviving the stalled Itare Dam project.
Among the options the government had on the water supply project included use of a financial guarantee to source funds for the resumption of its construction.
Already, KSh27 billion had been released to the contractor but very little is going on on the grounds.