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Withholding Tax on Accruals

Withholding Tax on Accruals

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Summary

This alert brings to your attention a recent Court of Appeal decision in the case of Kenya Revenue Authority and Republic (ex parte: Fintel Limited) on the treatment of Withholding Tax (WHT) on accruals as per the provisions of the Income Tax Act (ITA).

Facts of the Case

Fintel Limited (Fintel) had contracted China Juangsu International Economic Technical Cooperation Corporation (CJIETCC) for the construction of a rental building.

Fintel experienced financial difficulty in settling outstanding fees to CJIETCC, triggering an interest charge on the outstanding amounts. Fintel accrued for the interest in its books but did not account for WHT on the interest. Following an audit of Fintel, the Kenya Revenue Authority (KRA) issued an assessment demanding WHT on the accrued interest on the basis that the tax was payable upon accrual of the interest in the financial statements of the company.

 

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