The Independent Electoral and Boundaries Commission, which is funded by the taxpayer, is off the hook in a tax dispute with the Kenya Revenue Authority over contracts linked to the 2022 General Election.
The Commissioner of Domestic Taxes carried out a tax compliance check on the IEBC’s books and accounts for the period July1, 2016 to July31, 2021 and demanded payment of Sh577 million.
During part of the period under review, the IEBC was involved in preparations for the 2022 general election.
However, the electoral body moved to the Tax Appeals Tribunal and objected to the huge tax demand and KRA reviewed the assessment, issuing a demand letter on May 26, 2023 seeking payment of Sh265 million.
The appeals tribunal finally spared the electoral body from paying Sh265 million and settled for Sh42 million tax payment.
The tribunal stated in the decision that KRA’s demand was not justified as the subject contract for the supply of the Kenya Integrated Elections Management System (KIEMS) and kits that were used in the election and testing of the gadgets was part of the importation services.
IEBC had argued that taxing the goods and thereafter imposing an additional tax on the same goods due to their installation, assembly and testing, amounted to double taxation.
The tribunal said the KRA was justified in assessing and confirming the payment of Sh25 million for the period 2017 to 2022 and further justified in issuing and confirming the assessment against the IEBC of Sh16.1 million in corporate tax for the period under review.
The appeal chaired by Robert Mutuma said they were satisfied that the contract provided for the supplier to install, commission, and ensure user acceptability of the supplied goods. They said IEBC did not supply a separate service outside of the contract.
“Consequently, the tribunal holds that the respondent (KRA) was not justified and erred in assessing and confirming the assessment against the appellant (IEBC) in the sum of Sh217 million for Value Added Tax (VAT) on imported services for the period 2017 -2022,” said the tribunal.
The tribunal further quashed a demand of Sh6 million sought by KRA after submitting that it was wrong for the taxman to withhold tax on system firewall security.
According to IEBC, they demanded the amount as being the withholding tax for payments made to IBM East Africa Limited for services rendered between 2017 and 2022.
The KRA had contended that the electoral body had withheld VAT for payments made to IBM EA on March 11, 2022 in respect of services provided for the system firewall network security architecture implementation.
The IEBC also challenged the demand of Sh25.5 million stating that the taxman erred by issuing an additional assessment on fringe benefit tax yet the electoral body did not at any time issue car loans or mortgages to its employees but was a mere guarantor to its members to enjoy the benefits set up by Salaries and Remuneration Commission (SRC).
The tribunal was informed that the fringe benefits tax on mortgage and car loans extended to members of the IEBC, which was operationalised by the National Treasury as guided by the SRC, was administered by mortgage lender Housing Finance (HF).
As an independent constitutional commission, the polls body said it is guided by the SRC on matters of remuneration and benefits to be accorded to its members.
It was disclosed that SRC advised on the car loan and mortgage benefits for all state officers and other public officers of the government in a circular dated December 17, 2014.
But KRA on its part argued that the guidelines issued by the SRC did not bar the electoral body from imposing fringe benefits tax on the beneficiary’s loans and mortgages scheme.
According to the taxman, IEBC was financing the loans to its staff through HF, and the benefit from the loan, therefore, arose from the arrangement that exists between IEBC and its employees.
It was also submitted that the IEBC earned interest income from mortgage fund deposits prior to being appropriated in the next budget.
The tribunal was informed that being an institution, IEBC is not exempted under the Income Tax Act and therefore the income arising is subject to tax.
Further, KRA submitted that IEBC failed to avail the requested supporting documents such as the memorandum of understanding with HF, and the schedule showing how the interest was utilised by the lender, and thus it was justified in issuing additional assessments on corporation tax.
