[2023] KETAT 97 (KLR)

Bahari Dhow Limited v Commissioner of Domestic Taxes (Tribunal Appeal 41 of 2022) [2023] KETAT 97 (KLR) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 97 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 41 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, AK Kiprotich & JC Bii, Members

March 17, 2023

Between

Bahari dhow limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya and a registered tax payer whose principle activity is in hospitality industry and it runs a hotel property in Diani Beach.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya. The Authority is an agency established for the purposes of assessing, collecting and accounting for tax revenues.

3. On 20th May, 2021, the Respondent issued a tax investigation findings demanding alleged tax arrears of Kshs. 39,225,927. 00 inclusive of penalties and interest which the Appellant objected to vide a letter dated 23rd April, 2021.

4. The Respondent issued its decision on 23rd November, 2021 confirming the entire assessment of Kshs.39,225,926. 00 being principal taxes together with penalties and interest.

5. Being aggrieved by the Respondent’s decision, the Appellant filed a Notice of Appeal on 23rd December 2021.

The Appeal 6. The Appellant in its Memorandum of Appeal dated 6th of January 2022 and filed on 15th February 2022 cited the following grounds for Appeal:a.That the Respondent erred in fact and law in highlighting variances in revenues in the sales ledgers against sales declared in the income tax returns and subjecting the variance to Corporation Tax and VAT and yet from the ledger accounts, the sales as per financials were in tally to the sales as per income tax returns filed in both 2017 and 2018 hence no variance.b.That the Respondent erred in law and fact in disallowing expenses totalling to Kshs. 12,959,820. 00 in 2017 and Kshs. 10,645,669. 00 in 2018, as declared by Bahari Dhow in calculating the tax payable and yet the aforementioned expenses were wholly and exclusively incurred by Bahari Dhow in generating its income for both years respectively in accordance with Section 15(1) of the Income Tax Act and hence subject to deduction by the Appellant in accordance with ITA.c.That the Respondent erred in raising assessments relating to both output VAT and input VAT from allegedly undeclared revenue and unsupported expenses respectively. As such the Respondent arrived at a wrong conclusion that Bahari Dhow had incurred inputs that were not well documented while under-declaring income in the periods January to December 2018. d.That the Respondent erred in law and fact in subjecting a consultant’s income to PAYE as opposed to Withholding Tax as stipulated under the Income Tax Act.e.That the Respondent erred in law and fact in overestimating the booking commission relating to Bookings.com and subjecting the same to withholding taxes for the periods 2017 and 2018. f.That in view of the foregoing, the Appellant is apprehensive that the actions of the Respondent lack in merit, are unlawful and a gross abuse of its office and statutory powers. Unless the orders sought are granted, the Appellant risks being unjustly required to pay the alleged taxes which in fact are not payable under the law.

Appellant’s Case 7. The Appellant’s case is premised on the hereunder filed documents and proceedings before the Tribunal:i.The Appellant’s Statement of Facts dated 6th January, 2022 and filed on 15th February, 2022 together with the documents attached thereto.ii.The Appellant’s written submissions dated 29th August, 2022.

8. That Appellant averred that the Respondent erred in fact and law in highlighting variances in revenues in the sales ledgers against sales declared in the income tax returns and subjecting the variance to Corporation Tax and VAT and yet from the ledger accounts, the sales as per financials were in tally to the sales as per income tax returns filed in both 2017 and 2018 hence no variance.

9. The Appellant averred that the Respondent highlighted variances in revenues in the sales ledgers against sales declared in the income tax returns and subjecting the variance to corporation tax and VAT. That however, the Appellant notes that from its view of the ledgers, the sales as per financials tally to the sales as per income tax returns filed in both 2017 and 2018.

10. That consequently, the Appellant noted that the Respondent erred in its findings as there was no variance in the sales amounts as highlighted in its findings. As such, the Respondent had no basis whatsoever to demand alleged Corporation tax of Kshs. 18,169,410. 00 as the Appellant had all its income subjected to corporation tax accordingly.

11. The Appellant submitted that it had demonstrated that the sales declared in its income tax returns and the sales declared in its audited financials tally with the sales declared shown in its sales ledger attached to the Appeal.

12. It insisted that the Respondent incorrectly disregarded the Appellant’s reconciliation of sales as declared in the Appellant’s duly audited financial statements and determined that the Appellant had under-declared its income and wrongly raised an additional assessment on Corporation Tax and VAT in this respect.

13. The Appellant averred that there were no sales variances nor undeclared income and therefore no basis for any additional assessment raised on allegedly undeclared income by the Appellant. As such the demand by the Respondent for Kshs. 18,169,410. 00 being alleged corporate tax was unwarranted.

14. To support its case, the Appellant relied on the case of Altech Scream EA Ltd. vs Commissioner of Domestic Taxes - Appeal No. 159 of 2016 where the Appellant averred that the Tribunal overturned the Respondent’s assessment on the basis that the Appellant reconciled its revenue stream with the declared income in the Appellant’s financial statements.

15. Regarding disallowed expenses, the Appellant submitted that the Respondent erred in law and fact in disallowing expenses totalling to Kshs. 12,959,820. 00 in 2017 and Kshs. 10,645,669. 00 in 2018, as deducted by the Appellant in calculating the tax payable and yet the expenses were wholly and exclusively incurred in generating its income for both years in accordance with Section 15(1) of the ITA and hence subject to deduction by the Appellant in accordance with the ITA. To support its arguments, the Appellant relied on the provisions of Section 15(1) of the ITA.

16. The Appellant insisted that the Respondent erroneously excluded the expenses claimed by the Appellant in the nature of advertisement expenses, travelling, repair and maintenance and other expenses which were deducted in accordance with specific provisions of allowable deductions under Section 15(2) of the Income Tax Act.

17. The Appellant added that it had demonstrated through the invoices from various suppliers that it incurred the expenses such as repair and maintenance and conveyance expenses wholly and exclusively in the production of income.

18. The Appellant stated that it noted that the expenses that were subject of alleged tax by the Respondent were expenses primarily in the course of generating its taxable income. That based on the provisions of Section 15(1) of the ITA, the Appellant was within its rights in deducting these expenses in its computation of the taxes payable by it. That consequently, the Respondent had no basis whatsoever of disallowing expenses that were used by the Appellant primarily for the production of income and hence the demand for taxes in respect of the same was unacceptable.

19. It further stated that the disallowed input tax was deducted in consonance with Regulation 7 of the VAT Regulations, 2017 which stipulate that input tax is only allowable where:a.The input has been incurred by the registered person;b.The input tax is incurred to make taxable supplies;c.The input tax is not specifically disallowed;d.The claim is backed by a proper tax invoice; ande.The input VAT is actually paid.

20. Regarding the alleged undeclared revenue and unsupported expenses, the Appellant averred that the Respondent arrived at a wrong conclusion that the Appellant had incurred inputs that were not well documented while under-declaring income in the periods January 2017 to December 2018.

21. The Appellant submitted that its audited accounts and the returns declared by the company indeed tallied and as such there was no undeclared income. That to this end, the Respondent could not purport to charge VAT on revenue that was not earned by the Appellant.

22. The Appellant cited Section 5 of the VAT Act which it averred provides for the charge to tax for VAT. The Section provides as follows:“Charge to tax(1)A tax, to be known as value added tax, shall be charged in accordance with the provisions of this Act on—(a)a taxable supply made by a registered person in Kenya;”

23. It averred that VAT was only chargeable on supply of taxable supplies. That consequently, for VAT to be imposed there must be a supply of taxable supplies made by a person. The Appellant submitted that it complied with this provision by declaring VAT on its vatable supplies and remitting the same to the Commissioner as stipulated in law. That it was therefore unfair and unwarranted for the Respondent to demand for VAT on non-existent and fictitious supplies.

24. In respect to input VAT, the Appellant submitted that the Respondent disallowed input VAT claimed by the Appellant on the basis that the same were unsupported. However, the Appellant averred that input VAT was correctly claimed for vatable supplies purchased by the Appellant in the course of its business and as such, qualified as deductible expenses for VAT purposes as provided for under Section 17(2) of the VAT Act, 2013 which specifically provides as follows;“Credit for input tax against output tax(1).Subject to the provisions of this section and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies.(2).If, at the time when a deduction for input tax would otherwise be allowable under subsection (1), the person does not hold the documentation referred to in subsection (3), the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation.Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.”

25. That based on the above legal provisions, it was within the Appellant’s rights to claim input VAT on vatable purchases by the company within the time frame provided for by law. As such, the input VAT claimed by the Appellant should be considered claimable and deductible against output VAT charged on the taxable supplies made by the company. That it was therefore inaccurate for the Respondent to disallow the said input VAT.

26. The Appellant contended that the Respondent vide their Value Added Tax Auto Assessment reviewed the Appellant’s input VAT schedules for the period January 2018 to May 2018 against supplier records. That from the said review, it was found that most of the inputs claimed were validly claimed with no additional assessment being raised for the months of January 2018 and April 2018. That it was therefore absurd that the Respondent proceeded to disallow the same inputs in their audit as unsupported while the VAA system had already validated these inputs.

27. The Appellant further averred that from its review there were few instances where the Respondent disallowed inputs where the same had not been claimed in the VAT returns resulting in an erroneous payable amount.

28. The Appellant asserted that the Respondent erred in law and fact in subjecting consultant’s income to PAYE as opposed to Withholding Tax as stipulated under the Income Tax Act. The Appellant stated that the Respondent in its assessment, subjected Mr Jorge Farras’ income to PAYE on the grounds that he was the general manager and that he received housing and petty cash which was allegedly unaccounted for.

29. The Appellant stated that Mr Jorge Farras was a consultant contracted to oversee the refurbishment and repairs of Bahari Dhow Hotel. That it was important to note that Mr. Farras was not an employee but a consultant hence payments made to him were subject to Withholding Tax.

30. That further, Mr. Farras was in the area purely for the Bahari Dhow assignment. As such the rent payment was not an employment benefit but rather a business decision by the Appellant to save on reimbursement on incidental costs that would have been otherwise recharged by Mr. Farras had he organized for his accommodation independently. As such, the accommodation expenses were mere substitute for reimbursements and as such not taxable on the consultant.

31. It averred that it was important to note that the petty cash amounts raised relate to amounts utilized for purposes of carrying out repairs and maintenance which Mr. Farras oversaw during his time at Bahari Dhow. That these amounts relate to business expenses and not a benefit to him thus do not constitute gains from employment chargeable to PAYE.

32. To support its arguments, the Appellant relied on the test for employment set out in the Tribunal’s case of Newport Africa Kenya Limited vs. Commissioner of Domestic Taxes, TAT No. 171 of 2015.

33. Regarding commissions to Bookings.com, the Appellant submitted that the Respondent erred in law and fact in overestimating the booking commissions and subjecting the same to withholding taxes for the periods 2017 and 2018.

34. The Appellant explained that based on the review of the commissions paid and the amounts raised under the Respondent’s demand there was a significant variance in the commissions paid out. The Appellant added that it paid commissions of Kshs. 2,868,768. 00 in 2017 and Kshs. 2,898,507. 00 in 2018. That however, the Respondent overestimated the booking commissions and subjected the same to WHT. The Appellant stated that the Respondent had no basis whatsoever of demanding Withholding Tax amounting to Kshs. 3,477,475. 00 in respect of commissions earned from Bookings.com.

35. In its submissions, the Appellant stated that it does not dispute the payment of booking commissions to Bookings.com. That however, the Respondent overstated the amounts paid by the Appellant in respect of booking commissions for the period of 2017 and 2018 and as a result, the tax payable thereon.

36. That in light of the foregoing submissions the issuance of the demand notice dated 20th November, 2020 and the subsequent issuance of the objection decision dated 23rd November, 2021 were without basis and illegal.

37. The Appellant was of the view that the issues for determination out of this matter were as follows:a.Whether the Respondent erred in determining that there was a variance in the revenues declared by the Appellant and subjecting to Corporation Tax and VAT.b.Whether the Respondent erred in disallowing expenses claimed by the Appellant.c.Whether the Respondent erred in raising assessments in relation to both output and input VATT.d.Whether the Respondent erred in subjecting the amounts paid to the Appellant’s Consultant to PAYE.e.Whether the Respondent erred in its assessment of Withholding Tax in respect of commissions earned by the Appellant.

Appellant’s Prayers 38. The Appellant prayed that this Tribunal finds in its favour and vacate the demand confirmation issued by the Respondent on 23rd November, 2021 for Kshs. 39,225,296. 00 with costs to the Appellant.

Respondent’s Case 39. The Respondent’s case is premised on its Statement of Facts dated 10th February, 2022 and filed on the same date together with the documents attached thereto and proceedings before the Tribunal.

40. The Respondent reiterated its position as stated in its objection decision communicated to the Appellant on 23rd November, 2021. It averred that the Appellant submitted a summarized tabulation of its monthly sales on paper without supporting documentation. That the Appellant provided sales ledgers during assessment. That from the records availed, it was established that the Appellant had under declared its sales and a reconciliation was not availed.

41. The Respondent stated that it requested for copies of all the Appellant’s bank statements for the period under review, which information was not availed despite several reminders.

42. The Respondent further stated that the Appellant did not avail supporting documents for the expenditure disallowed on repairs and maintenance, and other expenses including conveyance, entertainment, travelling and advertisement. To support its arguments, the Respondent cited Section 54A of the Income Tax Act which provides as follows;“(1)A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds, contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax.”

43. That the attached supporting invoices were not availed during the review stage hence the Respondent is not privy to the contents therein. That consequently, the Appellant was guilty of seeking to adduce new documents at the appeal stage.

44. As regards output and input VAT from undeclared revenue and unsupported expenses, the Respondent stated that output VAT assessments were raised due to variances noted in the records availed by the Appellant as well as their self-declared income tax returns. That output VAT was charged on the variances computed.

45. It averred that input VAT claims were not supported by relevant documentation despite numerous calls for the Appellant to provide the same. That the Appellant sought to introduce new documents at the appeal stage which would prejudice the Respondent as he was never given the chance to review the legitimacy and veracity of the said documents during the review stage.

46. On the issue of subjecting a consultant’s income to PAYE, the Respondent stated that it scrutinized the records of the Appellant and discovered that one Jorge Farras was signing off as the General Manager (GM). That further Farras earned a monthly income based on a percentage of sales. However, this income was subjected to withholding tax as opposed to PAYE as required by law.

47. It added that the GM resided in a house whose rent was paid by the Appellant. That this housing benefit was also charged as part of the GM’s emoluments. That it was also noted that the GM receives moneys in form of petty cash but the Appellant had not provided evidence of expenditure. Those amounts were considered for PAYE in the absence of proper evidence of expenditure.

48. That these findings reveal the nature of the relationship between the Appellant and Jorge Farras as an employer-employee relationship. That the Appellant did not provide supporting documentation to prove its claims.

49. Regarding booking commissions, the Respondent stated that the Appellant engaged Booking.com’s services. That Booking.com received commissions at a rate of approximately 18-20%. It stated that the Appellant failed to deduct Withholding Tax and remit the same to the Respondent.

50. The Respondent averred that the Appellant did not declare/claim any commissions in relation to Booking.com in their financial statements and returns. That this was also evidenced by the withholding income tax data from iTax on commissions on which withholding tax was withheld and remitted.

51. That further, in 2018, the Appellant did not pay any withholding taxes as per its iTax records. The Respondent submitted that Section 56(1) of the Tax Procedures Act places the burden on the Appellant to prove that a tax decision is incorrect.

52. The Respondent insisted that the Appellant had failed to discharge its burden of proving that the Respondent’s assessment was incorrect by adducing relevant documents requested.

53. That due to the failure of the Appellant to adduce the relevant supporting documentation, the Respondent was unable to verify the objection of the Appellant and consequently the Respondent used the information available and his best judgement to arrive at the assessed amounts.

54. To support its arguments, the Respondent relied on Section 31 of the Tax Procedures Act which empowers the Commissioner to make assessments according to the information available to him and best judgement in ensuring that the Appellant is only liable for the correct tax. The Respondent further placed reliance on Section 31(3) of the VAT Act.

55. The Respondent submitted that where a taxpayer makes an objection to assessments issued by the Commissioner, the taxpayer is obligated to provide all the relevant documentation it relies on in making the objection. That having failed to provide the documents requested, the Respondent acted fairly, within the confines of the law in assessing the Appellant’s tax obligations as per its self-declared returns.

56. That it is trite law that the Respondent is empowered to vary the assessments using any available information in the Respondent’s possession as provided under Section 24(2) of the TPA.

57. The Respondent asserted that the objection decision complied with Section 51(10) of the TPA by including a statement of findings and providing the reasons for the decision arrived at. That the reasons adduced in the Respondent’s objection decision outline why the assessed amounts were rightful and sufficient.

58. The Respondent stated that the Appellant’s grounds for appeal were not sufficient. That from the facts of the case, the Appellant did not provide any evidence contrary to the basis of the Respondent’s assessment.

Respondent’s Prayers 59. The Respondent prayed that the Honourable Tribunal:a.Upholds the Respondent’s decision as proper and in conformity with provisions of the law.b.That this Appeal be dismissed with costs to the Respondent as the same is devoid of any merit.

Issues for Determination 60. Having carefully studied the parties’ pleadings, submissions and all documentation provided, the Tribunal is of the respectful view that the issues falling for its determination are as followsa.Whether the Respondent erred in subjecting the payments to Mr Jorge Farras to PAYE.b.Whether the Respondent erred in charging Withholding tax on payment of booking commissions to Bookings.com.c.Whether the Respondent’s decision to disallow the Appellant’s input VAT was proper as per the provisions of the VAT Act.d.Whether the Respondent erred in its assessment of Income Tax on the Appellant.

Analysis and Findings 61. Having identified the issues for determination, the Tribunal proceeded to deal with the issues separately as follows:

a) Whether the Respondent erred in subjecting payments to Mr Jorge Farras to PAYE. 62. It was the Respondent’s submission that it scrutinized the records of the Appellant and discovered that one Jorge Farras was signing off as the General Manager (GM). That further Farras earned a monthly income based on a percentage of sales. However, this income was subjected to withholding tax as opposed to PAYE as required by law. It added that the Jorge Farras resided in a house whose rent was paid by the Appellant.

63. The Appellant on its part insisted that Mr Jorge Farras was a consultant and not an employee. The Appellant stated that Mr Jorge Farras was a consultant contracted to oversee the refurbishment and repairs of Bahari Dhow Hotel. That it was important to note that since he was not an employee payments made to him were subject to Withholding Tax.

64. To determine whether payments to Mr Farras were subject to Withholding Tax or PAYE, the Tribunal sought to establish whether he was an employee or a consultant.

65. The Tribunal reiterates the holding in Gilbert Sule Otieno vs. Seventh Day Adventist Church (EA) Ltd. Cause No. 455 of 2014 where the Court drew a distinction between a contract for service and a contract of service. These are common law terms that are used to distinguish between the nature of the service provided by a worker to employer. While the contract of service refers to a person who is in employment, contract for service refers to a person who provides services to his clients. In that case, Justice Radido Stephen stated that:“An independent Contractor’s contract in my view is a contract of work (Contract for service) and not a contract of service, or to use the ordinary language, a contract of employment. The hallmarks of a true independent contractor are that the contractor will be:a.a registered taxpayerb.will work for his own hoursc.runs his own businessd.will be free to carry out work for more than one employer at the same timee.will invoice the employer each month for his/her services and be paid accordinglyf.will not be subject to usual “employment’” matters such as the deduction of PAYE(tax in income), work injury damages, right to join unions, will not get annual leave, sick leave, minimum wages, maternity/paternity leave, redundancy payments, 13th Cheque, public holidays, accommodation in lieu of housing allowance, pensions and protection against unfair or wrongful dismissal ’’

66. The Respondent had stated that it scrutinized the records of the Appellant and discovered that Mr Farras was signing off as the General Manager (GM). That further Farras earned a monthly income based on a percentage of sales and he resided in a house whose rent was paid by the Appellant. That in addition, Mr Farras received moneys in form of petty cash but the Appellant had not provided evidence of expenditure.

67. Going by the hallmarks as set out in the aforementioned case of Gilbert Sule Otieno vs. Seventh Day Adventist Church (EA) Ltd it was upon the Appellant to provide at least some documentary evidence to demonstrate that Mr. Farras was indeed a contractor and not an employee.

68. The Appellant in this case sought to attach a general ledger showing payments to Mr. Farras in a bid to demonstrate that he was a consultant. However, the Tribunal was of the view that the Appellant ought to have supplied documents such as a contract for service or agreement with the contractor or some of those indicated in the above case law to support the payments and to prove its claim that Mr. Farras was indeed a consultant. In the absence of such evidence, the Appellant’s arguments remained just averments.

69. Section 56(1) of the TPA provides as follows regarding the burden of proof:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

70. The Tribunal was further guided by the case of Trust Bank Limited vs. Paramount Universal Bank Limited & 2 others [2009] eKLR where the Court observed that:“It is trite that where a party fails to call evidence in support of its case, that party’s pleadings remain mere statements of fact since in so doing the party fails to substantiate its pleadings.”

71. Consequently, the Tribunal finds that the Respondent did not err in subjecting the payments to Mr. Farras to PAYE.

b) Whether the Respondent erred in charging Withholding Tax on booking commissions to Bookings.com. 72. It was the Respondent’s contention that the Appellant engaged Booking.com’s services. That Booking.com received commissions at a rate of approximately 18-20% from which the Appellant failed to deduct Withholding Tax and remit the same to the Respondent.

73. On its part, the Appellant submitted that it does not dispute the payment of booking commissions to Bookings.com. That however, the Respondent overstated the amounts paid by the Appellant in respect of booking commissions for the period 2017 and 2018 and as a result, the tax payable thereon.

74. The Appellant contended that the Respondent overestimated the booking commissions for the years 2017 and 2018 as being Kshs. 4,929,305. 00 and Kshs. 8,549,282. 00. Whereas the actual commissions were Kshs. 2,868,768. 00 in 2017 and Kshs. 2,898,507. 00 in 2018 as given in the Appellant’s audited financial statements showing the commissions paid by the Appellant.

75. From the pleadings of the Appellant, it was clear to the Tribunal that the Appellant was only disputing the amount in the assessment which it averred was overstated and not the fact that it failed to deduct Withholding Tax on payments to Bookings.com. The Appellant was indeed conceding that the actual commissions that it ought to have withheld and remitted to the Respondent amounted to Kshs. 2,868,768. 00 in 2017 and Kshs. 2,898,507. 00 in 2018 as given in its audited financial statements which in this case it failed to do as required by law.

76. On this the Appellant fails as it does not state any valid reasons for not withholding the tax and subsequently remitting the same to the Respondent. Secondly although the Appellant made attempts to dispute the amounts in the Respondent’s assessment, it did not provide any documentary evidence to demonstrate the actual rate of the said commission.

77. It was the view of the Tribunal that the Appellant ought to have withheld the Withholding Tax on booking commissions to Bookings.com as required by law and subsequently remitted the same to the Respondent which in this case it failed.

78. Consequently, the Tribunal finds that the Respondent did not err in charging withholding tax on payment of booking commissions to Bookings.com

c) Whether the Respondent’s decision to disallow the Appellant’s input VAT was proper as per the provisions of the VAT Act. 79. In determining whether the Respondent’s decision to disallow the input VAT by the Appellant was proper as per the provisions of the VAT Act, 2013 the Tribunal set to confirm whether the Appellant furnished sufficient proof in form of documentation.

80. The Respondent in arriving at the objection decision stated that the Appellant did not provide the Commissioner with any supporting documents. The Respondent further stated in its submissions that the Appellant did not avail supporting documents for the expenditure disallowed on repairs and maintenance, and other expenses including conveyance, entertainment, travelling and advertisement.

81. The Appellant argued that it was within its rights in claiming input VAT on vatable purchases by the company and within the time frame provided for by law. That as such, the input VAT claimed by the Appellant should be considered claimable and deductible against output VAT charged on the taxable supplies made by the company. That it was therefore inaccurate for the Respondent to disallow the said input VAT.

82. Section 17(3) of the VAT Act in providing for documentation required in claiming input VAT provides as follows:“The documentation for the purposes of subsection (2) shall be—a.an original tax invoice issued for the supply or a certified copy;b.a customs entry duly certified by the proper officer and a receipt for the payment of tax;c.a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction;d.a credit note in the case of input tax deducted under section 16(2); ore.a debit note in the case of input tax deducted under section 16(5).”

83. The Tribunal noted from the documents provided by the Appellant with its appeal documents in support that it attached copies of the disallowed invoices, receipts, delivery notes and goods received notes.

84. The Respondent had however averred that input VAT claims were not supported by relevant documentation despite numerous calls for the Appellant to provide the same. That the Appellant sought to introduce new documents at the appeal stage which would prejudice the Respondent as he was never given the chance to review the authenticity and veracity of the said documents during the review stage.

85. From the Respondent’s submissions it was clear that although the Appellant had provided the documents, its argument was that the same were not provided earlier during the assessment. From the Respondent’s arguments it was clear to the Tribunal that the documents presented by the Appellant in support of this Appeal hadn’t been considered by the Respondent.

86. The Tribunal was of the view that with the provision of the documents proving that the Appellant had indeed purchased vatable goods and in the larger interest of justice the matter ought to be referred back to the Commissioner for consideration of the documents and determination of any appropriate VAT payable by the Appellant.

d) Whether the Respondent erred in its assessment of Income Tax on the Appellant. 87. The Tribunal noted that one of the key issues in this dispute was the assessment of Income tax that arose from variances as raised by the Respondent. It was further noted that the variances were partly caused by disallowed expenses.

88. Having entered the above determination in (c) in relation to VAT, the Tribunal is of the considered view that since the disallowed VAT expenses had direct effect on income tax, this issue should equally be referred back to the Commissioner for re-assessment taking into consideration the evidence adduced by the Appellant.

Final Decision 89. The upshot of the foregoing analysis is that the Appeal partially succeeds and the Tribunal accordingly proceeds to make the following orders:i.The Respondent’s assessment on PAYE in relation to payments to Mr Jorge Farras be and is hereby is upheld.ii.The Respondent’s assessment in relation to Withholding Tax on booking commissions to Bookings.com be and is hereby upheld.iii.The assessments in relation to VAT and Income Tax are referred back to the Commissioner for re-computation taking into consideration the documentary evidence adduced by the Appellant.iv.Each party to bear its own costs.

90. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MARCH, 2023. ERIC N. WAFULACHAIRMAN…………………………CYNTHIA B. MAYAKAMEMBER…………………………GRACE MUKUHAMEMBER…………………………ABRAHAM KIPROTICHMEMBER………………………………JEPHTHAH NJAGIMEMBER…………………………