[2024] KETAT 1123 (KLR)

Independent Electrol and Boundaries Commission v Commissioner of Domestic Taxes (Tax Appeal E623 of 2023) [2024] KETAT 1123 (KLR) (1 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1123 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E623 of 2023

RM Mutuma, Chair, M Makau, EN Njeru, B Gitari & AM Diriye, Members

August 1, 2024

Between

Independent Electrol and Boundaries Commission

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a Constitutional Commission established by Article 88 of the Constitution of Kenya, 2010, and governed by an Act of Parliament, The Independent Electoral and Boundaries Commission Act No.9 of 2011, and is mandated with the responsibility of conducting and supervising referenda and elections prescribed by law, reviewing boundaries, names and number of constituencies and wards.

2. The Respondent is the principal officer appointed under the Kenya Revenue Authority Act and mandated with the responsibility for the assessment, collection and accounting for all tax revenue as an agent of the Government of Kenya. The Respondent is also mandated with the responsibility for the administration and enforcement of all the statutes set out under the schedule to the said Act.

3. The Respondent carried out a tax compliance check on the Appellant’s books and accounts for the period 1st July 2016 – 31st July 2021, and issued its findings to the Appellant dated 24th June 2022 in which the Respondent demanded various taxes totaling Kshs. 577,529,576. 00.

4. During the period under review the Appellant was involved in the preparation of the 2022 National General Elections as guided under the Constitution of Kenya and national legislation.

5. The Appellant thereafter provided clarifications to the Respondent’s letter of findings dated 24th June 2022 vide a meeting held on 23rd March 2022 and 25th October 2022.

6. The Respondent reviewed the assessment from the said Kshs. 577,529,576. 00, and issued a demand letter dated 26th May 2023 for Kshs. 265,592,122. 00.

7. The Appellant lodged its objection notice on 12th June 2023 to the additional assessment.

8. On 11th August 2023 the Respondent issued an objection decision fully rejecting the Appellant’s objection and confirmed the assessment in the sum of Kshs. 265,592,122. 00.

9. The Appellant being dissatisfied with the Respondent’s Objection Decision filed its appeal via a Notice of Appeal dated and filed on 8th September 2023.

The Appeal 10. The Appellant filed its Memorandum of Appeal dated 22nd September 2023 on the same date and set out the following grounds of appeal:a.That the Respondent erred in fact and law by failing to review the grounds of objection raised by the Appellant.b.That the Respondent erred in fact and law by failing to review and take into consideration the documentation in support of the objection.c.That the Respondent erred in fact and law by failing to take into account that the Appellant had paid VAT tax at the point of entry together with the respective import duty and the relevant Railway Development Levy (RDL), Import Declaration Fund (IDF), for the Kenya Integrated Electoral Management System (KIEMS).d.That the Respondent erred in fact and law by issuing an additional assessment on Fringe Benefit Tax whilst the Appellant did not at any time issue car loans or mortgages to its employees and was a mere guarantor to its members to enjoy the car loan and mortgage set up by Salaries and Remuneration Commission.e.That the Respondent erred in fact and law by issuing an additional assessment on corporation tax whilst the Appellant did not undertake any business during the period under review and therefore was not subject to income tax on the car loan and mortgage scheme set up by the SRC and administered by HFCK, a financial institution.f.That the Respondent erred in law and fact by violating the Appellant’s legitimate expectation and right to fair administrative action.g.That the Respondent demanded an amount that is excessive, punitive and beyond the ability of the Appellant to pay contrary to the canons of taxation.

The Appellant’s Case 11. The Appellant’s case is premised on its;a.Statement of Facts dated and filed on 22nd September 2023 together with the documents attached thereto; and,b.Written submissions dated 16th April 2024 and filed on 17th April 2024.

12. The Appellant stated that during the period 2017 to 2022 review, it was able to provide numerous documentations comprising of contracts, invoices and explanation of how the Appellant works in terms of requested for funding every financial year to finance its mandate as outlined in the Act of parliament and as provided for in the constitution of Kenya, as such emphasizing the point that the Appellant relies on budgetary allocation from the consolidated fund.

13. Further, it was stated that the Respondent did not provide the Appellant with the grounds upon which the Appellant’s objection was rejected, despite having received explanations and supporting documentation as to why the additional assessment was erroneous both in fact and law, in line with Article 47 (2) of the Constitution and Section 4 (2) of the Fair Administrative Actions Act.

14. The Appellant stated that its rights were violated since upon objection, the Respondent did not provide reasons for not considering the reasons raised in the objection notice in its Objection Decision issued on 11th August 2023 thus failing to give reasons for rejecting the objection for the period 2017 to 2022.

15. The Appellant canvassed its grounds of appeal and set out to highlight the objections explained to the Respondent with supporting documentation under the five tax issues assessed as hereunder;

A. Vat On Imported Services / Reverse VAT: 16. The Appellant stated that it raised grounds for the objection of VAT on imported services, where the Respondent sought to charge VAT on imported services for services offered to IEBC by various foreign companies based in France and Netherlands.

17. It stated that being an independent constitutional body that relies on funding from the consolidated fund is required to provide budget estimates for the three years being for the coming year and two further years under the medium-term expenditure frame work. In this regard the Appellant had made budgetary submissions for the 2022 General elections in the 2018 / 2019 budget cycle.

18. The Appellant stated that it invited tenders for the contract for the supply, delivery, installation, testing, commissioning, supporting, and maintenance of the KIEMS system, hardware, equipment and accessories for the financial period 2019 – 2020.

19. Following the tender evaluation, M/S Smartmatic International Holdings B.V, a company registered in the Netherlands was awarded the tender and the contract was signed on 25th November 2021, outlining the specifics of the agreement.

20. The Apparent averred that based on the contract, the agreement was for the supply of the KIEMS gadgets for use in the registration, confirmation of votes, voting and relaying of the votes during the 2022 General elections. It was further stated that for the Appellant to certify the validity of the kits, confirm their conformity with requirements and ensure that they could be used for the intended purposes, the supplier was required to carry out User Accepting Testing (UAT) in line with the international best practices.

21. The Appellant cited the provisions of Section 11 of the VAT Act as follows;“(11)Place of delivery of goods;A supply of goods occurs in Kenya if –a.The goods are delivered or made available in Kenya by the supplier;b.The supply of the goods involves their installation or assembly at a place in Kenya.”

22. The Appellant also cited the provisions of Section 14 of the VAT Act as follows:“(1)The taxable value of imported goods shall be the sum of –a.the value of the goods ascertained for the purpose of customs duty, in accordance with the East African Community Customs Management Act, 2004, whether or not any duty of customs is payable on the goods;b.to the extent not included under paragraph (a) –i.The cost of insurance and freight incurred in bringing the goods to Kenya; andii.The cost of services treated as part of the imported goods under this section; andc.The amount of duty of customs, if any, paid on these goods.(2)Unless the context otherwise requires, a supply of services that is ancillary or incidental to the importation of goods shall be treated as part of the importation.”

23. The Appellant stated that the import of the foregoing provisions, is clear that the installation, assembly and testing of these kits constitutes part of the supply of kits because these services are ancillary to the supply of goods.

24. It was further stated that the Respondent misclassified the importation of the KIEMS gadgets and accessories by segregating the supply, delivery, installation, testing, commissioning, supporting and maintenance and seeking to demand for VAT on the services ancillary to the importation of the KIEMS gadgets.

25. The Appellant further stated that it made the importation of the KIEMS gadgets and paid the requisite VAT at the port of entry over and above other taxes namely the Railway Development Levy and IDF.

26. The Appellant averred that the Respondent failed to consider the following facts;a.That the contract was a single contract for the supply of KIEMS kits which are goods.b.That the supplier only tested and installed and ensured UAT of the kits they supplied, and did not supply a separate service.c.That international best practice provides for UAT on supply of electronic systems and devices before supply is considered complete.d.That the supplier of the KIEMS kit did not offer any other service outside the UAT provided for in the contract document.

B. Fringe Benefits Tax; 27. The Appellant stated that it raised grounds for the objection of Fringe Benefits Tax on mortgage and car loans extended to members of the Appellant, which is operationalized by the National Treasury as guided by the SRC. The scheme is administered by HFCK, a financial institution.

28. The Appellant stated that as an independent constitutional commission it is guided by the SRC when it comes to the matters of remuneration and benefits to be accorded to its members, and as such the SRC advised on the car loan and mortgage benefits for all state officers and other public officers of the Government of Kenya vide a circular dated 17th December 2014.

29. The Appellant stated that pursuant to the said circular and the Medium-Term Expenditure framework, provided eligible members and share the same with Treasury as part of budgetary estimates, which operationalized and released the funds to HFCK for onward lending to eligible members at the agreed interest rates set out by SRC at a rate of 3% per annum on reducing balance for the duration of the loan.

30. The Appellant stated that it acts as a guarantor for the purpose identifying the staff members who apply for the loans and that they actually work for the Appellant, and their terms of service.

31. It was stated that at no time does the Appellant provide any car loan or mortgage to its directors or employees and therefore the arrangement between the various members is purely a commercial arrangement.

32. The Appellant stated that Section 5 (4) (e) of the Income Tax Act provides that , notwithstanding anything to the contrary in sub-section (2) “ gains or profits“ do not include – fringe benefits subject to tax under Section 12 B of the Act, which provides that the fringe benefit tax shall be on the total taxable value of a fringe benefit provided by an employer in a month and shall be due and payable on or before the tenth day of the following month .

33. The Appellant averred that based on the foregoing provisions on the fringe benefits tax, it did not provide the car loan and mortgage to its directors and members of staff and thus this should not be applicable as the scheme was purely a commercial arrangement between the Appellant’s members and HFCK based on funds from the exchequer.

34. It was further stated that HFCK being a financial institution, has the prerogative to negotiate and issue loans to different organizations at rates below the market rate and secondly, the funds provided to HFCK for onward lending to the Appellant’s members when such funds accrue interest the same is not remitted to the Appellant but forms part of HFCK’s interest income or cost of managing the fund.

C. Withholding Tax on system firewall network security by IBM East Africa Ltd; 35. The Appellant stated that it raised grounds for the objection of additional assessment on withholding tax on system firewall network security.

36. It was averred that the Respondent demanded Kshs. 5,580,592. 00 being WHT on payments to IBM EA for various services rendered within the period. The Appellant averred that the WHT was deducted and remitted and the respective schedule is provided to evidence the fact.

37. It further averred that IBM EA has a permanent establishment in Kenya for tax purposes. Section 76 (A) of the ITA provides;“The Commissioner shall not assess any person for a year of income on that portion of income which has been subject to Withholding tax which is also a final tax.”

38. The Appellant therefore contended that the WHT was final on IBM. It stated that IBM accounted for their taxes, accordingly to the assessment levied on the Appellant, which is on another entity’s final tax.

D. Corporation Tax; 39. The Appellant stated that it raised grounds for the objection of additional assessment on corporation tax with regard to the interest earned by HFCK, a financial institution, in running the car loan and mortgage scheme.

40. The Appellant stated that the car loan and mortgage scheme does not engage in any revenue generating or any profit-making activities, stating that it was not in a position to establish the interest on loan earned by HFCK which is a legal entity and a registered taxpayer with its own PIN number and as such its records should be with the Respondent.

41. The Appellant averred that any income received by it is simply appropriation in aid, which is offset from the budget and any excess is remitted to the National Treasury as per the Public Finance Management Act, 2012, and the Public Finance Management Regulations.

42. It was further averred that the Appellant was not undertaking any business with regard to the car loan and mortgage scheme as purported by the Respondent and therefore no corporation tax ought to be levied on the Appellant.

43. The Appellant cited the provisions of Sections 2 and 3 of the Income Tax Act which provide as follows;“(2).‘businesses include any trade, profession, or vocation, and every manufacture, adventure and concern in the nature of trade, but does not include employment.”

44. Section 3 (1) provides,“(1)Subject to, and in accordance with this Act, a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.”

45. Section 3 (2) (1) provides;“subject to this Act, income upon which tax is charged under this Act is income in respect of gains or profits from any business, for whatever period of time carried on.”

46. The Appellant averred that based on the foregoing provisions, it is clear that the Appellant did not engage in any income generating business by the mere act of acting as a guarantor for the car loan and mortgage scheme, requesting for funding through the Medium-Term Expenditure Framework for the scheme as guided by the SRC, and as such, no corporation tax should be assessed by the Respondent.

E. The Respondent erred in fact and law by violating the appellant’s legitimate expectation and the right to fair administrative action; 47. The Appellant stated that having objected to the additional assessment, the Respondent ought to have considered and reviewed the documents availed by the Appellant in support of the objection.

48. It stated that the Respondent’s confirmation of assessment was made arbitrary without reference to the Appellant and without taking time to explain the source of the information relied on when coming up with the assessment order.

49. It was further stated that the Respondent’s powers are donated by and ultimately subject to the law and must be exercised within the law. In demanding taxes without offering a conclusive response to the objection lodged as required by Article 210 (1) of the Constitution of Kenya, the Appellant avers that the Respondent abused its powers in violation of Article 47 (1) of the Constitution and Section 4 (1) of the Fair Administrative Actions Act.

50. The Appellant further stated that both Article 47 and Section 4 (1) of the Fair Administrative Actions Act are intended to subject administrative processes to constitutional discipline and safeguard against capricious and whimsical actions that lead to abuse of authority by public bodies exercising administrative functions.

51. It stated that where the decision of a public authority violates the provisions of Article 47 of the Constitution and Section 4 (1) of the Fair Administrative Actions Act, such a decision cannot be allowed to stand.

52. The Appellant therefore asserted that the Respondent’s decision issued through their letter dated 11th August 2023 against an additional assessment of Kshs 265,592,128. 00 for various taxes ought to be vacated in entirety since it violates the Appellant’s right to fair administrative action.

53. In its submissions, the Appellant stated that during the period of review from 2017 to 2022, it furnished the Respondent with numerous documents including contracts, invoices, oral and written explanations on how the Appellant finances its mandate as provided in the Constitution and in the IEBC Act, emphasizing the Appellant relies on budgetary allocation from the consolidated fund.

54. It was submitted that Article 47 of The Constitution of Kenya provides;“(1)Every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.(2)If a right or fundamental freedom of a person has been or is likely to be affected by administrative action, the person has the right to be given written reasons for the action.”

55. It submitted that the foregoing provision together with Section 4 of the FAA Act places a burden on the Respondent to provide the Appellant with information, materials and evidence to be relied upon in deciding or taking an administrative action.

56. The Appellant also submitted that in the case of Local Productions Kenya Ltd vs. Commissioner of Domestic Taxes TAT 50 of 2017, the Tribunal found that by failing to give reasons for its decision, KRA acted in violation of the taxpayer ‘s right to fair administrative action which includes that every person has the right to be given written reasons if an administrative decision will affect them adversely.

57. The Appellant submitted that it provided both oral and written submissions in the course of engagement with the Respondent, detailing the reasons as to why their initial assessment and the additional assessment were misconstrued, but the Respondent has been adamant in taking into account the Appellant’s detailed reasoning and evidence in support of the objection.

58. It was further submitted that the Respondent not only failed to consider the Appellant’s reasoning and documentation, but has also failed to give sufficient reasons or any at all, to merit its decision to impose the tax burden on the Appellant, which is a gross violation of the Appellant’s right to fair administrative action.

59. The Appellant cited the case of Tononoka Rolling Mills Ltd vs. Commissioner of Domestic Taxes TAT 1388 of 2022 and submitted that the burden of proof shifted to the Respondent once documentary evidence and a detailed explanation was sent to them, but notably the Respondent has not produced any documentary evidence informing the decision to impose such a heavy tax burden on the Appellant.

60. The Appellant further submitted that the Respondent requested it for documents such as; Contract between IEBC and Idemia Identity and Security France ; Contract between IEBC and Idemia Identity and Security France SAS; Contract between IEBC and Idemia Identity and Smartmatic BV ; Breakdown of amounts charged on imported services ; Customs Entry documents and proof of payment for the VAT ( highlighted on Bank statements ) , and faulted the Appellant in failing to provide the said documents , yet the request was done without regard to the due process . The Appellant submitted that nevertheless, it has submitted all the documents requested to the Respondent who has ignored the documents and maintained its demand.

61. The Appellant further submitted that the Respondent erred in fact and law in failing to consider that the Appellant had paid VAT at the point of entry together with the respective import duty and the relevant RDL, IDF and import duty for the KIEMS.

62. It submitted that taxing the goods , and thereafter imposing an additional tax on the same goods due to their installation , assembly, testing or supply of support and maintenance services , which are ancillary and incidental to the importation of the said goods amounts to double taxation , as the Appellant had already paid the RDL,IDF, and import duty at the port of entry while importing the KIEMS kits , and further withheld and remitted the 20% WHT on the support offered .

63. The Appellant also submitted that the Respondent erred in law and fact by issuing an additional assessment on Fringe Benefits Tax whilst the Appellant did not at any time issue car loans or mortgages to its employees but rather was a mere guarantor to its members to enjoy the car loan and mortgage scheme set up by the Salaries and Remuneration Commission.

64. It submitted that the Appellant was merely a guarantor and not an entity that issued the loans to the Appellant’s members. The Appellant was required to confirm to HFCK that the eligible members were indeed staff of IEBC, and their terms of employment, but the Respondent erroneously stated that the Appellant issued car loans and mortgages at a lower interest rate and failed to account for FBT. It further submitted that the FBT only accrues when an employer provides a loan to their employees and charges a lower interest rate as compared to the prescribed market interest rate.

65. It further submitted that the Appellant did not issue car loans and mortgages to either its directors or staff members, and the scheme ought to be treated purely as a commercial arrangement between the Appellant’s members of staff and HFCK Ltd, based of funds appropriated by the National Treasury.

66. It was further submitted that HFCK Ltd as a financial institution may negotiate and issue loans at a lower interest rate than the prescribed market rate; and the interest that accrues subject to the onward lending to the Appellant’s members forms part of the financial institution’s interest income or cost of managing the fund.

67. The Appellant cited the case of Mount Kenya Bottlers Ltd & 3 others vs. Attorney General & 3 others [2019] eKLR , ( CA 164 of 2013) , where the Court of Appeal decision expressed the vitality of a clear and concise statutory provision before a tax burden can be imposed , consequently upholding that the language used when imposing a tax burden must leave no room for presumptions assumptions and intendments as was held in the case of Cape Brandy Syndicate vs. Inland Revenue Commissioner [1992] AC 300.

68. In addition, the Appellant submitted that in the case of CA 180 of 2019 Export Trading Company vs. Kenya Revenue Authority [2018] eKLR, the court held that the principles of the rule of law and legal certainty are fundamental in ensuring that parties affected by the decisions of bodies can plan their affairs with a measure of predictability, certainty and confidence.

69. The Appellant therefore submitted that for the Fringe Benefits Tax to accrue, according to legislation, there must be a benefit given by an employer. In the instant case the Appellant has not issued any benefit to its members of staff, and therefore the Respondent should not claim that the Appellant owes them FBT, as it would be greatly injurious and a miscarriage of justice to demand payment of the same.

70. The Appellant also submitted that the Respondent erred in law and fact by issuing additional assessments on corporation tax whilst the Appellant did not undertake any business during the period under review and therefore was not subject to income tax, on the car loan and mortgage scheme set up by SRC and administered by the HFCK Ltd, a financial institution.

71. It submitted that pursuant to Government circulars dated 17th December 2014 and 29th January 2015, the Appellant merely acted as a guarantor in the car loan and mortgage scheme which was administered by HFCK Ltd, a financial institution. As such the Appellant did not receive any interest from the scheme, and the same was earned by HFCK, who issued the loans, as a cost of running the scheme.

72. The Appellant further submitted that it was not in position to establish the interest earned by HFCK Ltd, which is a non-related legal entity registered as a taxpayer and with its own PIN number, hence its tax records ought to be with the Respondent.

73. It further submitted that any income received by the Appellant is appropriation in aid, which is offset from the budget and any excesses are remitted to the National Treasury as per the Public Finance Management Act and Regulations.

74. The Appellant also submitted that Sections 3 (1), 2 (a) (1) of the ITA provides that income tax shall be charged upon income of a person, excluding employment, and the said income is in respect of gains and profits from any business.

75. It was a submission of the Appellant that the Respondent erroneously assumed that the Appellant was carrying out business or made profits from the car loans and mortgage scheme thereby charging Corporation Tax. Imposing Corporation Tax on the Appellant would be excessive and punitive since the Appellant did not receive any gains or profits from the scheme.

76. The Appellant submitted that the Respondent erred in law and fact by issuing additional assessment on withholding tax on system firewall security. It stated that the Respondent demanded Kshs. 5,580,592. 00, excluding interest and penalties, as being the WHT for payments made to IBM EA, who has a permanent establishment in Kenya for tax purposes, for services rendered between 2017 to 2022.

77. The Appellant submitted that Section 76 A of ITA provides that;“The Commissioner shall not assess any person for any year of income on that portion of income which has been subject to withholding tax which also a final tax.”

78. It further submitted that WHT was final on IBM EA and hence the assessment is on another entity’s final tax and not on the Appellant.

79. The Appellant also submitted that the Respondent erred in fact and law by violating the Appellant’s legitimate expectation and the right to fair administrative action.

80. It was submitted that the Respondent has failed to prove that the additional assessments are due for payment by the Appellant according to the law. It cited the case of Kenya Revenue Authority & 2 others vs. Darasa Investments Ltd CA 24 of 2018 [2018] eKLR, and stated that the act of Respondent was in direct contravention of Article 47 (1) and Section 4 (1) of the FAA Act, and an abuse of authority by the Respondent.

81. In conclusion, the Appellant submitted that the Respondent demanded an additional assessment that was unlawful, excessive, punitive and beyond the ability of the Appellant to pay contrary to the canons of taxation.

Appellant’s Prayers 82. By reason of the foregoing the Appellant prayed that, the decision of the Respondent be annulled pursuant to Section 51 (11) of the Tax Procedures Act, 2015; or varied in such manner that may appear just and reasonable to the Honorable Tribunal.

The Respondent’s Case 83. The Respondent’s case is premised on its;a.Statement of Facts dated 5th December 2023 and filed on 6th December 2023 together with all the documents attached thereto; and,b.Written submissions dated and filed on 15th April 2024.

84. The Respondent stated that it undertook a compliance check on the Appellants for the year 2017 to 2022 and on 26th May 2023 raised additional assessment amounting to Kshs. 265,592,127. 00 made up as: - VAT on imported services ………………Kshs. 217. 837,884. 00;

PAYE ………………………………………Kshs. 25,561,406. 00;

Withholding Tax …………………………Kshs. 6,027,040. 00;

Corporation Tax …………………………Kshs. 16,165,797. 00;

Total ……………………………………. Kshs. 265,592,127. 00.

85. The Appellant lodged a manual objection to the assessment on 16th June 2023, and the Respondent wrote to the Appellant requesting for further supporting documentation on 1st August 2023.

86. The Respondent also stated that the Appellant through a letter dated 28th June 2022, had sought an exemption from the National Treasury on reverse VAT resulting from the contract. The request was not considered by Treasury as the Appellant had not demonstrated their inability to account and pay the reverse VAT. There was no further follow up on this issue by the Appellant, the Respondent stated.

87. Consequently, on 11th August 2023 the Respondent issued its Objection Decision fully rejecting the Appellant’s objection notice to the assessment for the period 2017 to 2022, thus triggering this Appeal.

88. The Respondent stated that, whereas Section 24 of the Tax Procedures Act allows a taxpayer to submit returns in the approved form and manner prescribed by the Respondent, it is not bound by the information provided therein and can assess for additional taxes based on any other available information.

89. It was also stated that Section 73 (2) (b) of the Income Tax Act also allows the Respondent to use its best judgement to assess a taxpayer where he has reason to believe that a return filed is not true or correct.

90. The Respondent stated that it relies on Section 51 (3) of the Tax Procedures Act which requires a taxpayer who disputes a tax decision to lodge a valid Notice of Objection to the decision, if all relevant documents relating to the objection have been submitted.

91. The Respondent averred that the addendum to the contract awarded clearly indicated that the contract consisted of;“The supply, delivery, installation, testing, commissioning, support and maintenance of the KIEMS and hardware- equipment and accessories.”

92. Further, the cost of each of these activities was distinctly assigned, and it is noteworthy that each activity had been priced separately and not collectively embedded in the full contract price.

93. The Respondent further averred that through a letter dated 28th June 2022, the Appellant had sought an exemption from the National Treasury on reverse VAT resulting from this contract. The request was not considered by Treasury as the Appellant had not demonstrated its inability to account and pay reverse VAT, and as such there was no further follow up on the matter.

94. The Respondent further stated that prior to 2019, Section 10 (1) of the VAT Act read, “services made to registered”, which made it difficult for unregistered persons to pay VAT. The Finance Bill 2019, amended the said section to read “services made to any person”, which means any person whether registered or not can pay VAT. In view thereof, the Commission is entitled to pay reverse VAT whether registered or not, and the taxes can be declared regardless of whether they are registered or not.

95. It was also contended by the Respondent that the Appellant provided to its staff loans and mortgages at interest rates lower than the market rates but failed to impose fringe benefits tax and is therefore expected to remit FBT as per Section 12 B of the ITA, which Section provides;“For the purposes of this section, the taxable value of fringe benefits shall be –In the case of a loan provided after 11th June 1998, or a loan provided on or before 11th June 1998, the greater of –i.the difference between interest that would have been payable on the loan if calculated at the market interest rate and the actual interest paid on the loan ...”

96. The Respondent stated that the Appellant failed to account and remit fringe benefits tax on loans accorded to its staff. Consequently, fringe benefits tax computed at Kshs. 25,561,406. 00 was assessed.

97. It was further stated that the guidelines issued by the Salaries and Remuneration Commission (SRC) does not bar the Appellant from imposing fringe benefits tax on the beneficiary’s loans and mortgages scheme.

98. The Respondent stated that the Appellant was financing the loans to its staff through HFCK, and the benefit from the loan therefore arose from the arrangement that exists between the Appellant and its employees, hence an employment benefit to its employees. Therefore, in line with Section 12 (B) of the ITA, the Respondent contended that it was justified in confirming the assessment on FBT.

99. The Respondent also stated that the Appellant had withheld VAT for payments made to IBM EA on 11th March 2022, and the Respondent requested the Appellant to provide the contract between IBM EA and IEBC but the same was not provided.

100. It averred that the services provided by IBM EA were of technical nature and therefore the Appellant should have withheld income taxes as outlined by Section 35 of the ITA.

101. The Respondent stated that it requested the Appellant to provide the following documents; MOU between IEBC and HFCK.

A schedule showing how the interest was utilized by HFCK.

102. It was stated that the Appellant failed to provide the above documents, but only provided the following; Purchases documents (ledgers and invoices) 2016-2021,

Controller of Budgets report 2016-2021,

IFMIS data 2016-2021,

Payrolls for 2016 -2021.

103. From the foregoing it was contended that the Appellant did not provide sufficient evidence to support its objection. The Respondent averred that the Appellant failed to provide supporting documents at the review stage therefore in contravention of Section 59 of the TPA which provides;“(1)For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorized officer may require any person by notice in writing, to –a.Produce for examination, at such time and place as may be specified in the notice any documents ….;b.Furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; orc.Attend at any time and place specified in the notice, for the purpose of giving evidence in respect of any matter or transaction appearing to be relevant to the tax liability of any person.”

104. The Respondent stated that the Appellant did not provide any evidence to show or demonstrate that the assessment is incorrect and failed to discharge its burden of proof that the Respondent’s tax decision is incorrect as per the provisions of Section 56 (1) of the TPA thus the appeal ought to fail on this ground.

105. The Respondent therefore contended that it was within its right to issue the additional assessments against the Appellant.

106. In its submissions , the Respondent stated that its empowered by Sections 29 and 31 (1) (b) of the TPA to amend the assessments based on the information available to it and to its best judgement , and cited the case of Commissioner of Domestic Taxes vs. Altech Stream EA Ltd [2021] eKLR , where it was stated that Section 31(1) of the TPA allows the Commissioner to make an assessment based on such information as may be available and to the best of his judgement .

107. It submitted that it utilized all the relevant information available including the Appellant’s returns in arriving at the correct tax liability, stating that the Appellant failed to provide all the requested documentation to support their objection thus the Respondent was justified in raising additional assessment using the available information.

108. The Respondent further submitted that though Section 24 of the TPA allows a taxpayer to submit returns in the prescribed matter, it is not bound by the information provided therein and can assess for additional taxes based on any available information.

109. The Respondent submitted that the Appellant had withheld VAT for payment made to IBM EA on 11th March 2022, and when it requested the Appellant to provide the contract between IBM EA and IEBC, the same was not provided.

110. It submitted that the services provided by IBM EA were of technical nature, and therefore the Appellant was required to withhold income taxes as provided by Section 35 of the ITA.

111. The Respondent also submitted that since the addendum to the contract awarded clearly indicated that the contract was for; the supply, delivery, installation, testing, commissioning, support, and maintenance of KIEMS and hardware, equipment and accessories, and the cost of these activities was distinctly assigned and priced separately, the Appellant is liable to pay VAT.

112. It was also a submission of the Respondent that regarding the issue of car loans and mortgages to staff, the Appellant was financing the loans to staff through HFCK as per the agreement between the Appellant and HFCK. Therefore, the responsibility of accounting for the fringe benefits fell on the Appellant and they failed to. The Respondent therefore submitted that it was justified in raising the additional assessment.

113. The Respondent also submitted that it bent backwards to accommodate and reach the Appellant who remained difficult and unresponsive through the process. It cited the case of Mohamed Ali T/A Top Model Apparels & 44 Others vs. Kenya Revenue Authority (2020) eKLR.

114. It was also submitted that the Appellant earned interest income from mortgage fund deposits prior to being appropriated in the next budget. The Appellant as an institution is not exempted under the Income Tax Act and therefore the income thereon is subject to tax.

115. The Respondent further submitted that the Appellant failed to avail the requested supporting documents such as the memorandum of understanding with HFCK, and the schedule showing how the interest was utilized by HFCK, and thus it was justified in issuing additional assessments on corporation tax.

116. It was also submitted by the Respondent that the Appellant despite being notified and given time to validate its objection failed to issue a valid Objection in line with Section 51 (3) of the TPA. It submitted that in line with Section 51 (4) of the TPA it informed the Appellant that its objection was invalid and sought for documents to validate the same.

117. It was further submitted that the Appellant despite being given an opportunity to provide positive evidence to defray the tax liability failed to adhere to timelines and provide the necessary documents.

118. It cited the case of TAT No. 55 of 2019 Boleyn International Ltd vs. Commissioner of Domestic Taxes, where the Tribunal stated;“Neither did the Appellant provide the relevant documents in support of its objection. Therefore, there was no conceivable way the Respondent would have considered the Appellant’s objection as the same did not place itself within the parameters of section 51(3) of the Tax Procedures Act.”

119. The Respondent also cited the case of Afya Xray Centre Ltd vs. Commissioner of Domestic Services TAT No. 70 of 2017.

120. It was a submission of the Respondent that the Appellant in lodging the objection failed to meet the threshold set in Section 51 (3) of the TPA, in that it did not attach the requested documents which the Respondent could have used to vary, amend or vacate the assessment.

121. The Respondent therefore submitted that the Appellant failed to comply with Section 56 (1) of the TPA which places the burden of proof on the taxpayer and cited the cases of: -i.Ngurumani traders Ltd vs. Commissioner of Investigations and Enforcement TAT 125 of 2017;ii.Grace Njeri Githua vs. Commissioner of Investigations and Enforcement TAT 102 of 2018;iii.Digital Box Ltd vs. Commissioner of Investigations and Enforcement;iv.Diversity Distributors Ltd vs. Commissioner of Domestic Taxes TAT 77 of 2018;v.Commissioner of Domestic Taxes vs. Metoxide Ltd [2021].

122. The Respondent also cited the provisions of Section 30 of the TAT Act, and Section 107 of the Evidence Act, and submitted that the law places the onus on the Appellant to prove their case. It further submitted that in this case the Appellant made mere allegations that the Respondent’s demanded taxes are excessive, punitive and beyond its ability to pay, but has not proved that the tax decision should not have been made or should have been made differently.

123. It was further submitted that the Appellant has the burden of proving that the decision of the Respondent is wrong by providing documents that prove their case, which did not happen, and as such the Respondent ‘s assessment is justified.

124. The Respondent submitted that the Appellant’s objection was rejected because the Appellant did not provide evidence to validate its Objection, and therefore its assessment is correct and should stand.

Respondent’s Prayers 125. By reason of the foregoing the Respondent prayed that the Tribunal orders;a.That the Respondent’s objection decision issued on 15th June 2023 be found to be proper in law and be upheld and the taxes therein are due and payable.b.That this Appeal be dismissed with costs to the Respondent as the same lacks merit.

Issues for Determination 126. The Tribunal having carefully reviewed and considered the parties’ pleadings, supporting documentation and their submissions is of the considered view that the appeal distils to one issue which commend for determination as follows;Whether the Respondent was justified in issuing and confirming the additional assessment on the Appellant in respect of VAT on imported services, PAYE (FBT), WHT & Corporation tax for the period under review 2017 to 2022.

Analysis and Determination 127. The dispute subject of this appeal arose when the Respondent on 25th May 2023 raised additional assessments amounting to Kshs. 265,592,127. 00 following a compliance review of the Appellant with respect to VAT, WHT, PAYE and Corporation Tax for the year 2017 to 2022.

128. The Respondent assessed the following taxes against the Appellant: VAT on imported services Kshs. 217,837,884. 00;

PAYE Kshs. 25,561,406. 00;

WHT Kshs. 6,927,040. 00;

Corporation Tax Kshs. 16,165,797. 00;

Total Kshs. 265,592,127. 00.

129. The Appellant has canvassed its Appeal along the above tax heads as assessed by the Respondent, and the Tribunal for ease of review of the sole issue cutting across the different tax heads would therefore analyze the same tax heads in a systematic format.

a. VAT on Imported Services (Reverse VAT) 130. The Appellant awarded tenders for the contract for the supply, delivery, installation, testing, commissioning, supporting and maintenance of the KIEMS system, hardware, equipment and accessories for the financial year 2019-2022 various foreign companies based in France and Netherlands, such as M/S Smartmatic International Holdings B.V, Idemia Identity & Security France, Idemia Identity & Security France SAS, and Idemia Identity & Smartmatic B.V.

131. The contract was the supply of the KIEMS gadgets for use in the registration, con formation of votes, voting, and relying / transmission of votes during the 2022 General Election.

132. The Respondent assessed the Appellant and charged VAT on imported services offered to IEBC by various the foreign companies based in France and Netherlands.

133. The Appellant has contended that pursuant to the provisions of Sections 11 and 14 of the VAT Act, the installation, assembly, testing and commissioning of these KIEMS kits constituted part of the supply of kits because these services are ancillary to the supply of the tendered goods.

134. The Appellant further contended that the Respondent misclassified the importation of the KIEMS gadgets and accessories by segregating the supply, delivery, installation, testing, commissioning, supporting and maintenance, and consequently seeking to assess and demand for VAT on the services ancillary to the importation of the KIEMS gadgets.

135. The Appellant further contended that it made the importation of the KIEMS gadgets and paid the requisite VAT, RDL, and IDF at the port of entry, and therefore taxing the goods, and thereafter imposing an additional tax on the same goods due to their installation, assembly, testing, commissioning, support and maintenance, which are ancillary and incidental to the importation of the said goods amounted to double taxation.

136. The Appellant thereby submitted that it would be a miscarriage of justice to tax the Appellant for necessary services that could not be divorced from the importation of the KIEMS gadgets, hardware, equipment and accessories to be used in a national affair, General Elections.

137. On the other hand, the Respondent contended that the addendum to the contract awarded clearly indicated that the contract consisted of; “the supply, delivery, installation, testing, commissioning, support and maintenance of the KIEMS and hardware, equipment and accessories.” The cost of each of the stated contracted activities was distinctly assigned, and priced separately and not collectively embedded in the full contract price, the Respondent submitted.

138. The Respondent also asserted that the Appellant through a letter dated 28th June 2022 had sought an exemption from the Treasury on reverse VAT resultant from this contract. It also averred that this request was not considered by Treasury as IEBC had not demonstrated their inability to account and pay the reverse VAT, and there was no further follow up on the matter. However, the Tribunal notes that there is no comment on this assertion by the Respondent, nor any independent confirmation from the Treasury, nor any documentation submitted to confirm the same.

139. It was also submitted that prior to the year 2019, Section 10 (1) of the VAT Act read, “services made to a registered”, which made it difficult to for unregistered persons to pay VAT, but the Finance Act, 2019, amended the said section to read, “services made to any person”, which meant any person whether registered or not can pay VAT. Consequently, the Appellant is therefore liable to pay reverse VAT whether registered or not, and the taxes can be declared whether it is registered or not.

140. The Appellant has cited the provisions of Sections 11 and 14 of the VAT Act, but in regard to the instant issue, the Tribunal considers as pertinent the provisions of Section 14 (2) which provides;“(2)Unless the context otherwise requires, a supply of services that is ancillary to or incidental to the importation of goods shall be treated as part of the importation.”

141. It is noteworthy that the KIEMS gadgets is an integrated electoral management system, comprising the, registration, identification, voting and vote transmission or relying in the General Election. For the Appellant to certify their validity, and confirm their conformity with the requirements and could be used for the intended purposes, the supplier has to carry out User Acceptance Testing (UAT), which on the converse entails the supply, delivery, installation, testing, commissioning and support/maintenance of the System, hardware, equipment and accessories being undertaken as ancillary to the supply. In essence, the supply and delivery cannot be separable or segregated from the incidental services given the nature and use of the equipment/gadgets supplied.

142. Flowing from the foregoing the Tribunal is satisfied that the subject contract was a single contract for the supply of KIEMS system, gadgets/kits, hardware, equipment and accessories, and their installation, testing, commissioning, support and maintenance.

143. The Tribunal is also satisfied that the contract provided for the supplier to install, commission, test and ensure user acceptability of the supplied goods, and did not supply a separate service outside of the contract.

144. Further, the Tribunal has not light sight of the fact that imported are chargeable to VAT together with all the attendant ancillary costs, and it is noteworthy that the Appellant asserted that the same had been paid, which assertion was not controverted by the Respondent. Therefore, the Tribunal is of the considered view that subjecting the ancillary costs of the Appellant’s imported goods to further VAT would amount to double taxation.

145. In light of the foregoing the Tribunal concludes that the services rendered by the Appellant’s suppliers under the contract, that is the supply, delivery, installation, testing, commissioning, support and maintenance falls squarely within the purview of the provisions of Section 11 (2) of the VAT Act, which provides;“(2)Unless the context otherwise requires, a supply of services that is ancillary to or incidental to the importation of goods shall be treated as part of the importation.”

146. Further, the Respondent ought to have treated the said services as part of the importation, and not as separate importation of services.

147. Consequently, the Tribunal finds and holds that the Respondent was not justified and erred in assessing and confirming the assessment against the Appellant in the sum of Kshs. 217,837,884. 00 for VAT on imported services for the period under review 2017 - 2022.

b. PAYE – Fringe Benefits Tax; 148. The Appellant was assessed by the Respondent for the years 2017 -2022 for PAYE – Fringe Benefits Tax, for having provided to its members of staff, car loans and mortgages at interest rates lower than the market rate but failed to impose fringe benefits tax as provided under section 12 B of the Income Tax Act.

149. The Respondent averred that the Appellant failed to account for and remit fringe benefits tax on loans accorded to its staff, and consequently computed and assessed PAYE- Fringe Benefits Tax at the sum of Kshs. 25,561,406. 00.

150. The Appellant contended that the said car loans and mortgages were issued pursuant to a circular dated 17th December 2014 and 29th January 2015 by the SRC which guides on matters of remuneration and benefits to members of the Appellant, and the circulars guided on the car loans and mortgages benefits for members of staff.

151. The Appellant further averred that the National Treasury then provided the requisite funds through the Medium-Term Expenditure Framework (MTEF) budgetary process to operationalize the car loan and mortgage scheme. It was stated that the National Treasury issued the funds to HFCK Ltd as part of the scheme for onward lending to eligible members at the agreed interest rate of 3% per annum on reducing balance for the duration of the loan.

152. It was contended by the Respondent that it was merely a guarantor , and not the entity that issued the loan to the Appellant’s members of staff , and that the role of the Appellant was to confirm to HFCK Ltd that the eligible members were indeed staff members of the Appellant , and their terms of service , and therefore the Respondent erroneously contended that the Appellant issued car loans and mortgages to its members of staff at a lower interest rate and failed to account for the FBT .

153. The Appellant therefore submitted that it did not issue car loans and mortgages to its Directors or members of staff, and the scheme ought to be treated purely as a commercial arrangement between the Appellant’s members of staff and HFCK Ltd, with funding from the National Treasury.

154. The Appellant also submitted that, HFCK Ltd as a financial institution may negotiate and issue loans at lower interest rates than the prescribed market rate, and the interest that accrues subject to the onward lending to the Appellant’s members of staff, form part of HFCK Ltd.’s interest income or cost of managing the fund.

155. It was also submitted by the Appellant that, Fringe Benefits Tax, according to legislation and the Respondent’s website must have been a benefit given by an employer. In the instant case, it stated that it had not issued any benefit to its members of staff, and therefore the Respondent should not claim that the Appellant has an FBT liability on account of loans and mortgages issued to its staff.

156. On the other hand, the Respondent contended that the guidelines issued by the Salaries and Remuneration Commission (SRC) do not bar the Appellant from imposing Fringe Benefits tax on the beneficiary’s loans and mortgages scheme in line with the requirements of Section 12 B of the ITA.

157. The Respondent also contended that the Appellant was financing the loans and mortgages to its staff through the HFCK Ltd and the benefit from the loans therefore arose from the arrangement that exists between the Appellant and its employees, hence an employment benefit to its employees, and therefore the responsibility of accounting for the FBT lay with the Appellant. Therefore, the Appellant was expected to account and remit FBT in line with Section 12B of the ITA

158. The Respondent averred that the Appellant failed to account for and remit FBT on loans accorded to its staff, consequently, FBT of the sum of Kshs. 25,561, 406. 00 was computed, and the assessment issued against the Appellant.

159. The Income Tax Act, Section 12B provides for the imposition of Fridge Benefits Tax as follows:“(1)Notwithstanding any other provision of this Act , a tax to be known as fringe benefit tax shall be payable commencing on the 12th June 1998 by every employer in respect of a loan provided at an interest lower than the market interest rate , to an individual who is a director or an employee or is a relative of a director or an employee, by virtue of his position as director or his employment or the employment of the person to whom he is related :Provided that the fringe benefit tax shall not apply to loans advanced on or before 11th June 1998. ”

160. This provision being the charging clause for the FBT implies that for the FBT liability to attach;i.The subject loan is provided at an interest rate lower than the market interest rate;ii.The commencement date for the tax is 12th June 1998;iii.The tax is payable by an employer;iv.The loan subject to the tax charge is provided to an individual who is a director or an employee, or is a relative of a director or an employee as the beneficiary or recipient of the loan; and,v.The loan is provided by virtue of the beneficiary or recipient’s position as a director or employee, or employment of the person to whom the beneficiary is related.

161. In the dispute before the Tribunal, it is not contested that the loans and mortgages were provided to persons in the employment of the Appellant (eligible persons), or that the loans were not provided at an interest lower than the market rates, or within the applicable period, or by virtue of beneficiaries’ relationship with the Appellant.

162. Surprisingly, the Appellant has contended that the funds were provided by the National Treasury to HFCK Ltd as a financial institution, for onward lending to the Appellant’s employees at an agreed rate of 3%, under the MTEC budgetary Framework, and therefore it is not the owner or provider of the loan scheme to its staff. And in the scheme, the Appellant asserted that it only acts as a guarantor, for the purposes of identifying that the staff members who apply for the loan facility are actually known, are employees of the Appellant, and their terms of employment. Suffice it to say that the Treasury has no fiduciary interest in the Appellant’s loan scheme, and the HFCK only has a commercial interest as a contracted fund manager for the scheme. The beneficiary staff members are employees of the Appellant, and therefore the Appellant has an interest in their welfare, thus its establishment of the car loan and mortgage scheme to benefit them.

163. It is noteworthy that the Respondent requested the Appellant for further supporting documentation for its objection, to wit; the MOU between IEBC and HFCK Ltd, and a schedule showing how the interest was utilized by HFCK, but the Appellant failed to provide the said documentation, thus failed to support its objection adequately.

164. The Tribunal frowns in disregard of the utterly and obviously illogical explanations tendered by the Appellant in regard to the FBT, which are contrary to reason and irrational, and has no doubt that the Treasury simply appropriated the funds approved and due to the Appellant ‘s staff loan scheme and from its budgetary expenditure to HFCK as a contracted manager/administrator of the scheme. The HFCK Ltd as a financial institution was purely a contracted financial service provider for the Appellant’s staff car loan and mortgage scheme. The staff loan scheme ostensibly belonged to the Appellant.

165. The Tribunal is therefore satisfied that the HFCK Ltd disbursed and facilitated the loans to the Appellant ‘s staff members in line with the agreement between the Appellant and the HFCK, and therefore the responsibility of accounting for the FBT rested with the Appellant.

166. In view of the foregoing the Tribunal finds and holds that the Appellant failed to account and remit FBT on account of car loans and mortgages issued to the Appellant’s staff, by virtue of their employment.

167. Consequently, the Tribunal finds that the Respondent was justified in assessing and confirming the on the Appellant in the sum of Kshs. 25,561,406. 00 for the period under review 2017 to 2022.

c. Withholding Tax on System Firewall Network Security by IBM EA Ltd; 168. The Respondent contended that the Appellant had with held VAT for payments made to IBM EA Ltd on 11th March 2022 in respect of services provided for the system firewall network security architecture implementation. The Respondent requested the Appellant to provide the contract between IBM EA ltd and IEBC but the same was not provided.

169. The Respondent further submitted that the services provided by IBM EA Ltd to the Appellant were technical in nature and therefore the Appellant ought to have withheld income taxes as outlined under Section 35 of the ITA. Consequently, the Respondent computed and assessed the Appellant for WHT in the sum of Kshs. 6,927,797. 00. The Appellant objected to the assessment on the basis that the WHT was deducted and remitted, and the respective schedule provided to evidence the fact.

170. The Appellant also averred that IBM EA Ltd has a permanent establishment in Kenya for tax purposes, and cited the provisions of Section 76 A of the ITA which provide;“The Commissioner shall not assess any person for a year of income on that portion of income which has been subject to withholding tax which is also a final tax.”

171. The Appellant therefore contended that the WHT on IBM EA Ltd was final, stating that the company accounted for their taxes, and the assessment levied on the Appellant, was accordingly another entity’s final tax.

172. Similarly, it was contended that since the services provided by IBM EA were technical in nature the Appellant ought to have withheld income taxes as per Section 35 of ITA but the Appellant failed to subject the payment made to IBM EA to WHT.

173. The Appellant has averred that it did withhold VAT on the payments made to the IBM EA, and remitted the same, and provided the respective schedule to evidence the same. The Respondent therefore ought to have reconciled and verified the said remission schedule and accordingly credit the Appellant. In this regard, the Tribunal is satisfied that the Appellant was charged erroneously for the VAT WHT liability.

174. On the Income Tax WHT, Section 76A of the ITA comes to bear. The section provides;“The Commissioner shall not assess any person for any year of income on that portion of income which has been subject to withholding tax which is a final tax.”

175. It has been averred and confirmed that the supplier company IBM EA has a permanent establishment in Kenya for tax purposes. The company as such accounted for its taxes and filed their own returns.

176. The provisions of Section 35 of ITA, which the Respondent has cited provides;“(1)Every person shall, upon payment of any amount to any non -resident person not having a permanent establishment in Kenya in respect of.”

177. The supplier company IBM EA Ltd is a resident company with a permanent establishment in Nairobi as is evident from its contract with the Appellant. The Tribunal is therefore satisfied that the company is obliged to file its own returns and account for its final taxes. The Appellant was therefore not obliged under Section 35 of ITA to subject the payments to IBM to WHT.

178. In light of the foregoing, the Tribunal concludes that the Respondent erroneously assessed the Appellant for another taxpayer’s (IBM- EA Ltd) final tax, and consequently finds that the Respondent’s assessment and confirmation of WHT on network security in the sum of Kshs. 6,927,040. 00 for the period under review 2017 – 2022 was not justified.

d. Corporation Tax; 179. The Appellant was assessed for Corporation Tax in the sum of Kshs. 16,165,797. 00 in respect of the staff car loan and mortgage fund. The Respondent charged Income Tax on interest earned from mortgage fund deposits held with the Housing Finance Company of Kenya Ltd (HFCK Ltd).

180. The Appellant objected to the assessment on the basis that, a financial institution runs the mortgage and car loan fund of the Appellant, and any interest earned does not accrue to the Appellant but to the Financial institution and is expended as the cost for the running of the fund. and secondly, it is a Constitutional Commission that totally relies on funding from the consolidated Fund to run the mortgage and car loan scheme as per the SRC guidelines. There, the scheme does not engage in any revenue generating or profit-making activity, and lastly. any income received by the Appellant is simply appropriation in aid, which is offset from the budget and any excess is remitted to the Government as per the PFM Act 2012 and PFM Regulations 2015.

181. The Respondent during the review of objection stage requested the Appellant for;i.The Memorandum of Understanding between IEBC and HFCK,ii.Schedule showing how interest was utilized by HFCK.The Appellant however failed to provide the above requested supporting documents to the Respondent.

182. The Respondent submitted that the Appellant earned interest income from mortgages fund deposits prior to being appropriated in the next budget. It was also averred that the Appellant as an institution is not exempt under the Income Tax Act, and therefore its income is subject to tax.

183. It was submitted that the Appellant failed to provide supporting documentation to support its objection at the objection review stage in contravention of Section 59 (1) of the TPA leading the Respondent to confirming the assessment.

184. The Respondent also submitted that the Appellant failed to discharge its burden of proof in proving that the Respondent’s tax decision is incorrect as per the provisions of Section 56 (1) of the TPA and therefore it was justified in issuing the additional assessment.

185. The Tribunal reiterates that Section 56 (1) of the Tax Procedures Act places the burden on the taxpayer to prove that a tax decision is incorrect. If a taxpayer makes averments without facts and evidence to back the averments, they remain mere statements, and the Respondent will have no option but to confirm the assessments.

186. In the case of Grace Njeri Githua vs. Commissioner of Investigations and Enforcement TAT 102 of 2018, the Tribunal restated the importance of burden of proof thus;“In this appeal, the Appellant has not provided the Tribunal with enough evidence to show that the net income the Respondent has based the tax assessment was not income or is subject to further cost deduction in arriving at a net profit. It is trite law that the burden of proof is on the taxpayer to show that the tax so assessed is not due from her.”

187. The law therefore places the onus on the Appellant to prove their case, and has the burden of proving that the decision of the Respondent is wrong or the assessment is excessive. This is done by provision of documents or other evidence that prove their case which did not happen.

188. In the instant Appeal, the Appellant has merely made statements and averments without any backing of documentary evidence. It also failed to provide the Respondent with the critical documents in evidence of its dealings with the financial institutional in regard to its staff car loan and mortgage scheme, which was necessary to support its objection in regard to the instant issue.

189. The Appellant’s statements therefore remained mere allegations that the taxes demanded are excessive, punitive, and beyond its ability to pay, but did not prove that the tax decision should not have been made or should have been made differently.

190. The Tribunal is therefore satisfied that the Appellant did not discharge its burden of proof, as did not adduce evidence to rebut the Respondent’s assessment by adequately supporting its objection.

191. In light of the foregoing, the Tribunal finds and holds that the Respondent was justified in issuing and confirming the assessment against the Appellant for the sum of Kshs. 16,165,797. 00 in corporation tax for the period under review 2017 to 2022.

192. The upshot of the foregoing is that the Appellant’s Appeal partially succeeds, and accordingly issues the orders as appropriate.

Final Determination 193. The Appellant’s Appeal having partially succeeded, the Tribunal makes the following orders;a.The Appellant’s Appeal be and is partially allowed.b.The Respondent’s Objection Decision dated 11th August 2023 be and is hereby varied as follows;i.The assessment on VAT on imported services in the sum of Kshs. 217,837, 884 be and is hereby set aside;ii.The assessment on Withholding tax in the sum of Kshs. 6,027,040. 00 be and is hereby set aside;iii.The assessment on PAYE on fringe benefits tax in the sum of Kshs. 25,561,406 be and is hereby upheld;iv.The assessment on Corporation tax in the sum of Kshs. 16,165,797. 00 be and is hereby upheld.c.Each party to bear its own costs.

194. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 1ST DAY OF AUGUST 2024. ROBERT M. MUTUMA - CHAIRPERSONMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERBERNADETTE M. GITARI - MEMBERABDULLAHI M. DIRIYE - MEMBER