Brookhouse School takes Sh140m tax feud to Court of Appeal

Elite school Brookhouse has escalated its long-running Sh140 million tax row with the Kenya Revenue Authority (KRA) to the Court of Appeal.

The school and the KRA are caught in a feud arising from subsidised tuition fees granted to its staff, which High Court Judge David Majanja had in April ruled is a taxable benefit.

Brookhouse, however, returned to court and convinced Justice Majanja to suspend his decision, pending an appeal.

In allowing the plea to suspend his earlier decision, the Judge directed the school to furnish a bank guarantee of Sh15 million within 45 days, failure to which the KRA was free to collect the amount.

“Turning to the issue whether the respondent will suffer substantial loss should the court deny it stay, I hold that the sum of KES 140,217,163.00 adjudged due to the Appellant is not insubstantial. If execution proceeds, the respondent’s business which comprises offering educational services to local and international students, is likely to shut down,” Justice Majanja said.

He added that it was not disputed that the school was a going concern, which like most businesses, has been having challenges due to the Covid-19 pandemic. “Any execution may affect its reputation and stand as an international school,” he said.

In April, Justice Majanja allowed the KRA to collect the money, saying the facility granted to the employees by the school is a taxable benefit for which the employee is liable and the school also had an obligation to collect Pay-As-You-Earn (Paye).

“I find the Commissioner’s position reasonable since staff members would pay the normal and ordinary school fees, which constitute the market rate, but for the employment-related benefit,” the judge said.

The court rejected the argument by Brookhouse that the law was ambiguous on what value to be attached to non-cash benefits accorded to employees.

The KRA did an audit of the school’s account between 2010 and 2014 and communicated its finding in 2017, claiming taxes amounting to Sh186.6 million. The taxes included PAYE, corporate tax, and withholding tax.

The management of the school objected to the computation, especially on Paye and non-cash benefits granted to its staff.

The school argued that in the absence of clear legislation on taxation of school fees benefits, it charges its teachers 15 percent of the applicable school fees following best practice, which requires that the teachers’ pay the cost of delivery of the services.

In the alternative, the school argued that even if the KRA were to take the view that the school fees benefits are taxable, then it should not be subject to the full 85 percent of the benefits tax but 10 percent.

The Commissioner reviewed the objection but ended up maintaining the Sh140 million for Paye and Sh43 million withholding tax.

Student categories

The Commissioner reasoned that the non-cash benefits in the form of discounted school fees for teaching staff were treated as a benefit since the employees enjoy a benefit.

The matter headed to the tax appeal tribunal, after the Commissioner rejected a review and after hearing the case, the tribunal ruled in favour of the school, prompting the KRA to appeal.

The school explained that there are three categories of students attending its institutions. Under the first category, students whose parents pay standard fees.

The second those whose parents are members of staff, and who pay a lower fee, and a third category on scholarships and bursary offered by the school paying a much lower fee than the first two categories.