In a matter where we acted for the Appellant company (the Company), the Tax Appeals Tribunal (the Tribunal) recently issued a judgment reaffirming the position that grant income is not income subject to tax in Kenya.

Background

In this matter, the Kenya Revenue Authority (KRA) had deemed that the Company was a tax resident in Kenya by virtue of being managed and controlled from Kenya and thereby proceeded to assess grant income received by the company to corporation tax at the rate of 30%.

Judgment

The Tribunal faulted KRA for purporting to subject an item that is not expressly set out under section 3(2) of the Income Tax Act to tax. This is in direct contravention of the finding of the High Court in the case of Commissioner of Domestic Taxes v Thika Road Baptist Church Ministries (Tax Appeal E024 of 2021)[2022] where the Court noted that:

“Tithes, freewill donations and offerings to the churches and other religious organisations did not fall within the scope of income which was chargeable to tax as per section 3(2) of the Income Tax Act which is an exclusive and closed list.”

The Tribunal ruled that the exclusion of grant income from the list of sources of income means that KRA could not stretch this list of items to include grant income. The Tribunal further noted that anything that is excluded from the list is not taxable unless it is shown and proved to be a profit or a gain that was raised in the course of business by a taxpayer or it fits any other class of income such as dividends or interest.

This judgment buttresses the literal rule of interpretation of tax statutes which requires that tax legislations be interpreted in their plain and natural meaning while considering what is clearly stated and not what was intended.