Italian firm contracted to build Itare dam fights tax demand

An Italian firm contracted to construct the multibillion Itare dam in Nakuru County is fighting tax demand by the Kenya Revenue Authority (KRA).

In an application to be heard on March 20, CMC Di Ravenna is also seeking a refund of Sh166,247,378 from the taxman.

Last year, Justice Pauline Nyamweya allowed the company to institute proceedings with a view to quashing a demand of Sh333,220 on account of VAT.

The company said in court papers that KRA in a private ruling made on December 20, 2016 had allegedly stated that the supplies made to the applicant’s Itare water supply are zero rated.

This was after the company sought clarification from KRA on whether the project is zero rated or exempt from VAT and excise duty.

ZERO RATED

KRA explained that since Itare dam water supply project was an aid funded project, supplies made to the project are zero rated.

The company also sought a private ruling from the Commissioner for Domestic Taxes regarding the status of the project and by another private ruling, KRA held that the project is zero rated.

Based on the advice given, the company said it made an application to KRA seeking a refund of Sh166 million but instead received a letter on May 23, 2018 where KRA disallowed the application for a refund. They were notified that VAT was due and payable by the applicant in respect to the supplies made to the project.

The company moved to court complaining that KRA did not notify them that the private ruling had been withdrawn as required under the provisions of Section 68 (1)of the Tax Procedures Act.

TAX DUE

The Italian firm said it only became aware of the withdrawal when they received a letter on March 23, 2018 informing them of the tax due.

But the company said the contract was executed on May 15, 2015, and the private ruling was made on December 20, 2016 and the withdrawal, therefore, was made long after the contract had been executed.

The company wants the demand quashed arguing that the decision is illegal, in breach of natural justice and abuse of power and discretion.

On December 7, the court allowed the company to seek orders quashing the demand and seek a refund.

KRA on its part said it is aware that the company has challenged the decision before the Tax Appeals Tribunal and hearing the case before the High Court is sub judice and an abuse of the court process.

TRIBUNAL

The taxman said the matter is before competent tribunal, which is vested with the powers to hear the dispute.

CMC Italy entered into a contract with Rift Valley Water Services Board for the Itare water supply project on May 15, 2015. The project is worth Sh28.9 billion which is financed through a consortium of Italian banks as an official aid funded project.

KRA said an audit was conducted on the company’s activities and covered the years of income 2016 and 2017. Additional assessment was done on March 23, 2018 giving rise to additional Sh923,768,641 in taxes.

The taxman is accusing the company of deliberately failing to disclose that Treasury had already issued them with an exemption letter.

Further, KRA argues that the company sells fuel to its subcontractors and also leases some of its equipment to them.