Tax Appeals Tribunal has been ordered to hear afresh an appeal lodged by a subsidiary of a South African firm to determine whether salary expenses paid to expatriates are allowable costs as per the Income Tax Act.
Stefanutti Stocks Kenya Ltd, a subsidiary of Stefanutti Stocks International Holdings Limited of South Africa had challenged taxes amounting to Sh158.4 million raised by the Kenya Revenue Authority (KRA) for the years between 2013 and 2019.
The construction and civil engineering firm which was contracted by Base Titanium in 2013 maintained that expatriate costs it incurred by providing housing, cable television and subscription fees, among other expenses are not personal but represented legitimate employee benefits, which is an allowable business expense.
In the ruling, High Court judge David Majanja noted that the Tribunal did not deal with the issue of whether the commissioner of domestic taxes erred in disallowing the salary expense as this was an express ground of appeal.
“Although the Appellant urges the court to make a finding on this issue, this is a factual issue reserved for determination by the Tribunal and this court, in considering only matters of law can only conclude that the Tribunal erred in failing to make the decision but cannot go ahead and determine the matter. In this respect, the proper remedy would be to order the Tribunal to hear and determine this issue,” the judge said.
In raising additional assessment taxes for corporate taxes, the KRA noted a variance between employment costs claimed in the audited financial accounts and gross salaries from the payroll returns provided by the company, in respect of salary expenses.
According to the Commissioner, the company did not support the variance of Sh46.4 million as expenditure wholly and exclusively incurred in the production of income as required by ITA and therefore, disallowed.
The taxman argued that expatriate personnel costs claimed including rent, cable television subscription, installation and activation fees as well as other miscellaneous payments for the benefit of expatriate personnel were personal expenses and are not allowable against business income.
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The Tribunal had held that the expenses were personal expenses and not allowable against business income.
The judge, however, said he agrees with the company that the conclusion was erroneous in light of the Commissioner’s findings that the firm had supported the same as having been incurred in generating the business income.