The M-Pesa Foundation will have to pay the Kenya Revenue Authority (KRA) tax arrears amounting to Ksh 6.5 million.
This follows a ruling by the tribunal which dismissed the appeal lodged by the foundation contesting the withholding tax arrears as demanded by the Authority.
According to KRA, M-Pesa Foundation had entered into an agreement with Safaricom PLC, under which Safaricom PLC seconded its employees to the Foundation and charged it for the employment costs incurred.
This arrangement was considered as a ‘service provider’ and ‘service recipient’ relationship, with the services provided being classified as management and professional in nature, the authority stated.
KRA contended that the payments made by Mpesa Foundation to Safaricom PLC were contractual management or professional fees subject to Withholding Tax for deduction and remittance to the Authority at the time of payment.
In agreement with the KRA’s position, the Tax Appeals Tribunal observed that a contract existed between the M-Pesa Foundation and Safaricom PLC for the provision of employment services.
The Tribunal noted that payments made by the M-Pesa Foundation to Safaricom PLC for these services constituted ncome for Safaricom PLC.
The Tribunal held, “… that the payment was correctly treated as an income to Safaricom since it was a payment made in exchange for Safaricom providing a service. Withholding Tax was therefore deductible on the payment.”
The law requires that whenever a person is paying for a contractual service including managerial, technical, agency, contractual, professional or consultancy services, they are obligated to withhold 5pc of the payment and remit the withheld amount to KRA.
