Base Titanium has failed to overturn Sh23.3 million tax demand on account of withholding tax arising from payments made to its marketing and distribution agent based in China.
The company had faulted the Kenya Revenue Authority (KRA) for assessing the payments at the rate of 20 percent contrary to its earlier approval of 12.5 percent, hence against its legitimate expectation.
"Having also confirmed the applicable withholding tax rate (WHT) rate for non-resident entities outside the VDTP (Voluntary Tax Disclosure Programme) period to be 20 percent, the Appellant cannot assume the programme covered the period up to 2022 and hide behind the Respondent’s approval, which, according to Section 37D of the TPA, is specific," said a tribunal.
The tribunal chaired by Robert Mutuma said the VTDP was time-bound and covered the period from 2015 to 2020.
The tribunal further noted that the mining firm had earlier taken advantage of the programme for the period 2019-2020.
The company revealed that it entered into an ilmenite sales agreement in 2015 with Wogen Pacific Company in China and made several payments to the Chinese firm for payment of commissions for distribution, marketing, and sales.
The company said from January 2019 to January 2022, it applied withholding tax at the rate of 5.625 percent on the commissions.
It later carried out a tax review of its affairs and disclosed unpaid withholding liabilities relating to the commissions at the rate of 12.55 percent under the VTDP.
However, the firm said KRA decided to depart from the position and adjusted the withholding tax rate applicable to specific transactions declared under the VTDP from 12.5 to 20 percent.
The firm said it took advantage of the VTDP and disclosed its unpaid tax liabilities relating to WHT on the commission paid to Wagon Pacific under the VTDP as provided for under Section 37D of the Income Tax Act (ITA).
Base Titanium said it lodged an application for VTDP on its iTax portal, which was approved by KRA in May 2023, and was allegedly notified that its VTDP had been approved.
The company accused the taxman of assessing the payments at the rate of 20 percent contrary to its earlier approval.
The taxman, in opposing the appeal, said contrary to the firm's allegations, the company made several payments to its mother company Base Resources, during the period under review.
The payments were mainly because of intercompany reimbursements for a multitude of costs incurred by Base Resources on behalf of its subsidiary and management fees for services rendered.
The taxman said the company initially declared these transactions as services fees and withheld them at the rate of 5.265 percent.
However, upon review under VTDP, some of the transactions were adjusted and declared correctly, and withholding taxes were paid.
It was KRA's argument that although some transactions were declared and payments made, some payments were not correctly adjusted and these were charged at the rate of 20 percent.
The KRA argued that if, for whatever reason, the company chose to adjust some transactions correctly, the law permits the taxman to review the same provided it was within five years.
Contrary to the firm's allegations, the VTDP was meant to facilitate the Base Titanium and other taxpayers who had not been declaring and remitting all the taxes due to ensure compliance but did not in any way bar KRA from confirming the accuracy of the declarations.
"Consequently, the Tribunal finds that the Respondent was justified in demanding withholding tax at 20percent in respect of payments made to Wogen Pacific," the tribunal said.
