[2023] KETAT 331 (KLR)

Techsavana Company Limited v Commissioner of Domestic Taxes (Appeal 655 of 2021) [2023] KETAT 331 (KLR) (2 June 2023) (Judgment)

Neutral citation: [2023] KETAT 331 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 655 of 2021

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, AK Kiprotich & Jephthah Njagi, Members

June 2, 2023

Between

Techsavana Company Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a private company incorporated in Kenya and whose principal activity is software development.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the Authority is charged with the responsibility of among others, assessment, collection, accounting, and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent vide a letter dated 5th June, 2020 notified the Appellant of intention to verify the records of the Appellant. The verification exercise commenced on 10th July, 2020.

4. The Respondent issued its preliminary finding on 17th October, 2020 for the financial period 2016 to 2019. The Appellant replied vide a letter dated 23rd October, 2020.

5. The Respondent issued a notice of assessment on 26th July 2021 for Kshs. 73,856,356. 00 for VAT and Kshs. 3,546,603. 00 for withholding tax.

6. The Appellant objected to the VAT assessment on 31st March 2021 through iTax. Subsequently after various engagements between the parties, the Respondent issued its objection decision on 1st September, 2021.

7. Being dissatisfied with the Respondent’s objection decision, the Appellant filed an appeal on 15th October, 2021.

8. The Appellant further lodged a Notice of Motion dated 28th December 2022 and filed at the Tribunal on 3rd January 2023 seeking to amend its Memorandum of Appeal prior to the judgement.

9. Following consent of the parties, the Tribunal allowed the prayers in the Notice of Motion on 13th January 2023.

The Appeal 10. The Appeal is premised on the following grounds as stated in the Amended Memorandum of Appeal dated 27th January 2023 and filed on 30th January 2023:a.That the Respondent erred in law and fact by charging VAT on disbursements paid to an agent (Appellant) by the principal (Appellant’s customers)b.That the Respondent erred in law and fact by charging VAT on outsourced labour.c.That the Respondent erred in fact and law by failing to determine the relationship between the Appellant, its customers and the employees, facts that were very vital in determination of the chargeability of VAT on the labour contract.d.That the Respondent erred in law and fact by issuing additional assessments of Kshs. 73,856,356. 00 for VAT without consideration of the facts around the contract and performance thereof.

The Appellant’s Case 11. The Appellant’s case is premised on the hereunder filed documents and proceedings before the Tribunal;a.The Appellant’s Statement of Facts dated 14th October, 2021 and filed on 15th October, 2021 together with the documents attached thereto.b.The Appellant’s written submissions dated 22nd July, 2022 and filed the on the same date.c.The Appellant’s Supplementary Statement of Facts dated 27th January 2023 and filed on 30th January 2023.

12. The Appellant stated that it is duly registered for VAT under the provisions of the VAT Act, No. 35 of 2013 (VAT Act). That it was contracted by some of its customers including Safaricom PLC and Kenya Commercial Bank Ltd to supply staff (developers) who were to come under the recipient’s direction and control

13. That the Appellant therefore assumed the role of an agent for its customers where it was to source the human capital, based on the specifications & salary scale of the customers. That after the performance of the specified duties at the specified times, the Appellant then paid developers and was compensated by the customers for the developers’ salary, plus its commission.

14. The Appellant averred that as part of the general agreement, Paragraph 4,3 of the Service Level Agreement between Safaricom PLC and the Appellant, set out the role of Safaricom as shown below:The General functions to be carried out by Safaricom PLC include:i.Shift managementii.Training as set out in Schedule 4 and coachingiii.Level management in liaison with the supplieriv.Setting out Key Performance Indicators for the outsourced “staff”v.Day to day supervision of the outsourced “staff’vi.Performance review (including quality management) of outsourced staffvii.Reward recognition and incentives but any such rewards or incentives will be paid through the supplier and has been already provided for in the rates negotiated between Safaricom and the Supplier (Appellant).viii.Approval of any contract renewals for the Outsourced staff based on performance, discipline levels and head count requirements

15. That the Respondent through a letter dated 5th June, 2020 notified the Appellant of its intention to verify its records, received vide an email dated 5th June, 2020. That after a series of engagements, the Appellant and the Respondent held an in-person interview on the 22nd July, 2020.

16. The Appellant submitted that the Respondent proceeded with the audit for the period between 2016 and 2019 and issued its preliminary letter of findings dated 17th October, 2020.

17. That after a series of engagements, the Respondent on 26th July 2021 issued a notice of assessment for Kshs. 73,856,356. 00 for VAT and Kshs. 3,546,603. 00 being amounts for withholding tax.

18. The Appellant averred that there being no dispute about the Withholding taxes amounting to Kshs. 3,546,603. 00, the Appellant proceeded to make payments for withholding taxes but objected to the assessments for VAT amounting to Kshs. 73,856,356. 00

19. That the Respondent issued its objection decision through a letter dated 1st September 2021 confirming the assessments for VAT indicating that the Appellant ought to have charged VAT on the full invoice amounts raised to its customers.

20. The Appellant submitted that in arriving at the additional assessments, the Commissioner assessed VAT on disbursements made in relation to outsourced employees contrary to the provisions of the VAT Act.

21. It stated that in the year 2016, the Appellant entered into a contract with Safaricom Plc to provide outsourced developers. That the contract read “Provision of Outsourced Developers”, with the wording of the contract being principal-agent relation with Safaricom Plc, KCB Bank being the principal while the Appellant was the agent.

22. The Appellant added that for the period January 2016 to September 2018 it provided outsourced developers to Safaricom Plc while charging VAT only on Agency Margin.

23. The Appellant explained that this model of transactions was also replicated in the contract between Kenya Commercial Bank Limited (KCB) and the Appellant. It stated that in the objection, it raised the following issues;i.Is VAT applicable for outsourced labour?ii.Who is liable when items chargeable to VAT are not subjected to VAT.

24. The Appellant explained that a disbursement was an expense which one pays on behalf of the client. That in such a case, the payer acts as an agent when settling the amount due to the supplier, gets the invoice in the customer’s name and collects the sum paid.

25. That in its Service Level Agreement, the Appellant acted as an agent of Safaricom by getting developers, as per the agreed qualifications and cadre and remunerated them based on the customer’s salary scale and was compensated for the money by the principal

26. The Appellant explained that VAT is not chargeable on disbursements as these are expenses being incurred on behalf of a principal by an agent. That Paragraphs 4. 2 and 4. 3 of the Service Level Agreement between Safaricom PLC and the Appellant clearly states the roles played by each party.

27. It averred that in the agreement, the Appellant receives money on behalf of the developers from the principal and pays the developers (the employees) in full, a transaction that involves no value addition. That the payments received from the customer represented the compensation of salary and other employment costs paid to the developers supplied.

28. Regarding the outsourced labour, it stated that this was a new concept in Kenya and is being adopted by most corporate companies for various reasons. That contract between independent parties stipulate each parties’ liabilities, its view was that the contract clearly stipulated amounts that were subject to VAT and as such the Commissioner should not assess tax on amounts the taxpayer was not entitled to charge.

29. The Appellant averred that in structuring the contracts, supply of outsourced resources was treated as disbursements as per Section 13(5) of the VAT Act 2013.

30. That the disbursement does not constitute a supply and hence is not subject to VAT because it is the client, who buys and receives the goods or services, the agent is just making the payment on its behalf.

31. The Appellant further contended that the contract between it and its customers was of a principal-agent relation. That this is implied by the tilting of the contract as ‘Provision of Outsourced Developers’. That the service level contract governed the relation.

32. That in determination of the relationship between Safaricom PLC, the Appellant and the outsourced developers, the Appellant took keen consideration of the contents of Paragraph 4. 3 of the SLA between themselves and Safaricom PLC.

33. That in this case therefore, all the payments received by the Appellant from its customers were just compensation for the payments made on behalf of the principal by the agent to the outsourced developers and should not be charged VAT.

34. The Appellant averred that there existed an employer-employee relationship between the outsourced developers and the Appellant’s customers. That Section 2 of the Income Tax Act defines a Contract of Service as;““contract of service” means an agreement, whether oral or in writing, whether expressed or implied, to employ or to serve as an employee for any period of time, and includes a contract of apprenticeship or indentured learnership, under which the employer has the power of selection and dismissal of the employee, pays his wages or salary and exercises general or specific control over the work done by him; and for the purpose of this definition an officer in the public service shall be deemed to be employed under a contract of service;”

35. That in this case, the contract between Safaricom PLC and the Appellant creates a relationship between Safaricom PLC and the mandated developers of an employer and employee as defined by Section 2 of the ITA.

36. Regarding legitimate expectation, the Appellant stated that it raised invoices to its customers for both the disbursements and its agency fees, charging VAT only on the Agency fees subject to the provisions of Section 13(5) of the VAT Act.

37. That the Appellant had legitimate expectation that the Respondent shall follow the doctrine of ‘Substance over Form’ and the provisions of Section 13(5) of the VAT Act and stop dwelling on the wording of the title in the Service Level Agreement between itself and its customers.

38. That the doctrine of legitimate expectation is now a well settled position in tax matters in Kenya. To argue its case, the Appellant relied on the Court of Appeal case of Kenya Revenue Authority, Commissioner Customs Services & Julious Musyoki vs. Darasa Investments Limited [2018] eKLR.

Appellant’s Prayers 39. The Appellant prayed that the Tribunal considers the case and finds that:a.That the Respondent erred in law and facts by issuing additional assessments of Kshs 73,856,356. 00 for VAT without consideration of the fact around the contract and performance thereof.b.This Tribunal forthwith withdraws and cancels the objection decision letter dated 1st September, 2021. c.The Respondent erred in fact and law by failing to determine the relationship between the Appellant, its customers and the employees, facts that were very vital in determination of the chargeability of VAT on the labour contract.d.That this Tribunal restricts itself to matters of VAT since the matter of Withholding taxes was not under contention.e.This Tribunal orders the Respondent to stay the enforcement of assessed taxes until the matter is conclusively determined.

The Respondent’s Case 40. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal;a.The Respondent’s Statement of Facts dated 15th November, 2021 and filed the same on the same date together with the documents attached thereto.b.The Respondent’s written submissions dated 20th July, 2022 and filed on the same date.

41. It was the Respondent’s averment that it conducted compliance analysis on the Appellant’s tax returns for the period January 2017 to December 2019 and noted some variances between sales declared in the VAT returns and the trial balance and final accounts.

42. That it noted that sales invoices to Safaricom, KCB and other customers were not subjected to VAT yet the services provided were vatable services. The Respondent stated that it noted variances on the VAT3 returns, bankings and reported sales as shown in the table below;VAT 2016 2017 2018 Total

Expected Sales(Excl VAT) 16,476,106 147,559,014 254,242,461. 81 418,277,582

Declared VATable amount on iTax 280,000 306,000 78,697,240 79,283,240

Difference 16,196,106 147,253,014 175,545,222 338,994,342

VAT @16% 2,591,377 23,560,482 28,087,235 54,239,095

Penalty @5% 129,569 1,178,024 1,404,362 2,711,995

Interest @1% 1,166,120 8,717,378 7,021,809 16,905,307

Total VAT Due 3,887,065 33,455,885 36,513,406 73,856,356

43. The Respondent stated that it requested the Appellant to explain the variance on the VAT3 returns and reported sales but the Appellant was unable to explain the variance prompting the Respondent to issue additional assessment amounting to Kshs 77,402,959. 00 inclusive of penalty and interest for the period January 2017 to December 2019.

44. According to the Respondent, the Appellant hires consultants on need basis for software development nonetheless their remuneration was not being subjected to withholding tax on amount paid to consultants on software development and integration. The amount was taxed as follows;2017 2018 2019 Total

Audit 45,000 250,000 250,000 545,000

Software development and Integration - 29,037,850 27,541,493 56,579,343

Total 45,000 29,287,850 27,791,493 57,124,343

Withholding @5% 2,250 1,464,393 1,389,575 2,856,217

Penalty 112. 5 73,219. 63 69,478. 73 142,810. 86

Interest 832. 50 366,098. 13 180,644. 70 547,575

Total 3,195 1,903,710 1,639,698 3,546,603

45. The Respondent averred that during objection, the Appellant provided some documents for review by the Respondent. That upon review it noted that the Appellant had under-declared the income for the period 2018. That the income for 2018 was Kshs. 254,242,462. 00 but the Appellant declared only Kshs. 78,697,240. 00 indicating under declaration of Kshs. 175,545,222. 00

46. It stated that in the objection decision it partially rejected the objection and reviewed the assessment to Kshs. 71,792,909. 00

47. The Respondent submitted that the Appellant was providing professional and technical services to its clients which translates to supply of service.

48. To support its arguments, the Respondent relied on the provisions of Section 2 of the VAT Act which defines supply of services as anything done that is not supply of goodsor money, including(a)the performance of services for another person

49. That further, Section 5(1) of the VAT Act states that;“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”

50. The Respondent averred that the law was clear that supply of services attracts VAT and the Respondent acted within the law in charging the same.

51. It was the Respondent’s submission that if the Appellant’s allegation was anything to go by that the same were disbursements, the payment would be disbursements on the consumer of the service. However, the same would be treated as payments for services rendered and income by the Appellant hence the argument for disbursement cannot stand.

52. Regarding use of bank deposits to assess the Appellant, the Respondent averred that they accorded the Appellant an opportunity during verification exercise to explain its variance in the VAT3 returns and the sales as per the bankings but the Appellant was unable to offer explanation on the variance.

53. The Respondent argued that the onus was on the Appellant to demonstrate the taxable income on which tax ought to have been levied. That further the Appellant is required to positively prove its actual taxable income and in doing so, must show that the amount of money for which tax is levied by the assessment exceeds the actual substantive liability of the Appellant.

54. To buttress its arguments, the Respondent relied on Section 24(2) of the TPA which states as follows;“The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.”

55. The Respondent averred that the responsibility for reconciliation of actual sales lay solely on the Appellant and the Appellant alone had the responsibility to devise workable procedures to ensure compliance with the tax law. It added that total income tax sales should be equivalent to total VAT sales and withholding and the Appellant did not adduce evidence to prove otherwise.

56. The Respondent submitted that Section 56(1) of the TPA and Section 30(a) of the TATA, places the onus on the Appellant to prove that indeed the assessment is inaccurate or excessive.

57. Regarding its objection decision, the Respondent averred that upon receipt of the Appellant’s objection it noted that the same was not validly lodged because it had not met the requirements of Section 51(3) of the TPA.

58. It was the Respondent’s contention that the Appellant objected to additional assessment of Kshs. 73,856,356 but did not have an objection to the withholding tax amounting to Kshs. 3,546,603. That the Appellant therefore failed to pay the withholding tax due on the undeclared sales not in dispute of Kshs. 3,546,603. 00

59. The Respondent therefore maintained that it considered the relevant facts and reviewed the objection decision on merit in arriving at the well-reasoned out decision.

60. It was the Respondent’s submission that Sections 2 and 5 of the VAT Act are very clear as regards the services offered by the Appellant. It maintained that the Appellant offered services by providing technical personnel to provide professional services. That the technical services attract VAT.

61. The Respondent further cited Section 5(4) of the VAT Act which states as follows;“The amount of tax payable on a taxable supply, if any, shall be recoverable by the registered person from the receiver of the supply, in addition to the consideration.”

62. That it was the responsibility of the Appellant to charge or recover the tax payable from the consumer of service in this case, Safaricom, KCB and other consumers of their services and cannot turn around to shift the burden to the Respondent.

63. The Respondent maintained that if at all the Appellant made an error in charging VAT on the agency margin only, the responsibility remains with the Appellant to correct the error by recovering the taxes due from the consumer of its services.

64. The Respondent insisted that it only charged VAT of the professional services rendered by the Appellant to its clients in accordance with Section 2 and 5 of the VAT Act.

65. The Respondent explained that contrary to the Appellant’s allegation that the Respondent was charging on taxes already settled, it averred that the Appellant by its own admission, confirms that it only charged VAT on Agency margin to mean that the other amounts remain due and collectable.

66. The Respondent argued that the allegations of the Appellant as laid out in its Memorandum of Appeal and Statement of Facts unless where in agreement by the Respondent are unfounded in law and not supported by evidence. That it acted according to the law.

67. The Respondent framed the issues for determination in this Appeal as follows:i.Whether supply of developers to offer technical services are vatable services.ii.Whether the Appellant was liable to charge and collect VAT on services rendered to its clients.iii.Whether the Respondent erred in confirming the assessment and demanding taxes due.

68. The Respondent averred that contrary to the Appellant’s assertions in its Memorandum of Appeal that the Respondent subjected disbursement income to VAT in relation to outsourced employees, the Appellant entered into an agreement with Safaricom vide Agreement dated 1st August, 2016. That in the said agreement under preamble/recital clause (B), it is stated that; Safaricom wishes to engage a contractor on nonexclusive basis to carry out the services.

69. Further, that the Agreement went ahead to define various terms under definitions and interpretation as follows;‘Services means the provision of outsourced developers to be provided by the supplier as set out in the schedule.Service fee means remuneration payable by Safaricom to the supplier for the provision of servicesUnder clause 7. 2 on Discipline & Training of outsourced staff, it is stated that;The supplier shall ensure the outsourced staff perform their functions professionally, efficiently and within the agreed timelines.’

70. It averred that from the foregoing provision of the VAT Act and the terms of the agreement between the Appellant and its supplier it was crystal clear that the Appellant was not supplying goods but services by way of installing and maintaining softwares to its clients/customers.

71. That having demonstrated that the Appellant was offering services, the next question the Respondent would like to address is whether the services offered were taxable supply.

72. To support its arguments, the Respondent relied on Section 2 of the VAT Act which defines taxable supply as follows;“means a supply, other than an exempt supply, made in Kenya by a person in the course or furtherance of a business carried on by the person”

73. The Respondent submitted that the supply of services was taxable supply subject to VAT at 16% unless the Appellant obtains exemption which was not the case in this matter.

74. It added that going by the express provisions of the VAT Act, the Respondent maintains that the Appellant offered taxable supplies and VAT became due at the time of supply.

75. The Respondent maintained that the Appellant had the responsibility to charge VAT when issuing the invoice and subsequently collect the taxes for the services rendered. To support this argument, the Respondent relied on the provisions of Section 5(3) of the VAT Act.

76. The Respondent further relied on the following provisions of the law and case laws to support its casei.Section 5(4) of the VAT Actii.Section 24 of the TPAiii.Section 56(1) of the TPAiv.Section 30 of the TATAv.The case in Kenya Hotels and Allied Workers Union v Panari Hotel & 12 others [2017] Eklr.vi.The High Court case in China Road & Bridge Corporation v Commissioner of Domestic Taxes [2021] Eklrvii.The High Court case in PZ Cussons East Africa Limited v Kenya Revenue Authority [2013] Eklr.viii.The Tribunal case in Boleyn International Ltd Vs Commissioner of Investigations and Enforcementix.The Case in Primarosa Flowers Limited Vs Commissioner of Domestic Taxes [2019] eklr.

The Respondent’s Prayers 77. The Respondent prayed that:i.The Appeal be dismissed with costs.ii.The additional withholding and VAT assessments raised by the Respondent be confirmed and the principal taxes, interest and penalties be found due and payable as per the objection decision rendered by the Respondent.

Issue For Determination 78. Based on the submissions of both parties, the Tribunal framed the issue for determination as follows: Whether the Respondent erred in its assessment of VAT on the Appellant.

Analysis And Determination 79. Having identified the issue falling for its determination, the Tribunal wishes to analyze as hereunder.

80. The Tribunal noted that although the assessment was in relation to Withholding Tax and VAT, the Appellant was not disputing the WHT assessment and it made payments for the entire amount. The objection decision was indeed in relation to VAT only meaning that the assessments in relations to withholding tax was not in issue any more. This fact was well settled by the purport of the Consent recorded by the parties on the 13th January, 2023. Whether the Respondent erred in its assessment of VAT on the Appellant.

81. The genesis of this dispute was the Respondent’s assessment of VAT on payments received by the Appellant from its customers particularly Safaricom and Kenya Commercial Bank Limited.

82. It was the Appellant’s contention that it was contracted by some of its customers including Safaricom PLC and Kenya Commercial Bank Ltd to supply staff (developers) who were to come under the recipient’s direction and control

83. That the Appellant therefore assumed the role of an agent for its customers where it was to source the human capital, based on the specifications & salary scale of the customers. That after the performance of the specified duties at the specified times, the Appellant then paid developers and was compensated by the customers for the developers’ salary, plus its commission.

84. On its part, the Respondent stated that the Appellant hires consultants on need basis for software development nonetheless their remuneration was not being subjected to withholding tax on amount paid to consultants on software development and integration.

85. That the Appellant was providing professional and technical services to its clients which translates to supply of service. The Respondent added that it was the responsibility of the Appellant to charge or recover the tax payable from the consumer of service in this case, Safaricom, KCB and other consumers of its services and cannot turn around to shift the burden to the Respondent.

86. To determine whether the Respondent was justified to demand the VAT from the Appellant, the Tribunal sought to determine whether the particular item invoiced by the Appellant amounted to a service that is subject to VAT.

87. The Tribunal reviewed the documents provided and noted that the Agreement signed between the Appellant and one of its clients, Safaricom titled ‘agreement For The Provision Of Outsourced Developers’ indicated at Schedule 3 on payment terms that each developer was to be payed a gross salary and entitled to statutory benefits including NSSF and NHIF, Statutory requirements indicated as WIBA and further essential benefits being Medical Scheme, Communication (airtime/data allowance) and overhead & supervision.

88. Further, the agreement under Clause 4. 2 states in part as follows;“4. 2 The role of the supplier will be limited to administration and staff management. The general functions to be carried out by the supplier include:

a.Recruitment of the outsourced staff although the final decision on the staff to be engaged will be approved by Safaricom and Safaricom reserves the right to attend and participate in interviews for the outsourced staff. …….b.……..”Under Clause 4. 3 the agreement states in part as follows;“4. 3 All aspects of operational and performance management will be carried out by Safaricom. The general functions to be carried out by Safaricom include:a.Shift managementb.Training as set out in schedule 4 and coachingc.Leave management in liaison with the supplierd.Setting of key performance indicators for the outsourced staffe.Performance reviews (including quality management) of Outsourced stafff.Day to day supervision of the Outsourced staffg.…”

89. From the above extract of the agreement between the Appellant and its customer (Safaricom) it is clear that the staff at all times were under the direct supervision by Safaricom. The Appellant was therefore a mere facilitator in the recruitment and facilitating their salary payments.

90. It was not in dispute that the Appellant had charged and accounted for VAT for the service fees paid to it by its clients in relations to its services as per its respective contracts. The only dispute was in relations to the amounts disbursed under Schedule 3 of the agreement to the outsourced staff. It was the Tribunal’s view that the Appellant having demonstrated that the clients were directly responsible for the remuneration and management of the outsourced staff and that it was merely facilitating the payments, it follows that these amounts were indeed disbursements and not a service subject to VAT.

91. Section 13(5) of the VAT Act provides as follows regarding disbursements;“In calculating the value of any services for the purposes of subsection (1), there shall be included any incidental costs incurred by the supplier of the services in the course of making the supply to the client:Provided that, if the Commissioner is satisfied that the supplier has merely made a disbursement to a third party as an agent of his client, then such disbursement shall be excluded from the taxable value.”

92. The Tribunal reiterates the finding in McMillan v. Canada 2012 FCA 126 where the Court of Appeal held that:“In our respectful view, it is settled law that the initial onus on an appellant taxpayer is to "demolish" the Minister's assumptions in the assessment. This initial onus of "demolishing" the Minister's assumptions is met where the taxpayer makes out at least a prima facie case. Once the taxpayer shows a prima facie case, the burden is on the Minister to prove, on a balance of probabilities, that the assumptions were correct.”

93. Additionally, in T.M. Bell v Commissioner of Income Tax [1960] EALR 224 Roland J. Stated:“…If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.”

94. Consequently, the Appellant having demonstrated that the payments were disbursements, the Tribunal finds that the Respondent erred in its assessment for VAT on the same.

Final Decision 95. On the basis of the foregoing, the Tribunal finds that the Appeal is merited and accordingly proceeds to make the following Orders:-i.The Appeal be and is hereby allowed.ii.The Respondent’s Objection decision dated 1st September, 2021 be and is hereby set aside.iii.Each party to bear its own costs.

96. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 02ND DAY OF JUNE, 2023. ...................................ERIC N. WAFULACHAIRMAN...................................CYNTHIA B. MAYAKA GRACE MUKUHAMEMBER MEMBER...................................ABRAHAM KIPROTICH JEPHTHAH NJAGIMEMBER MEMBER