A contract of service establishes rights and obligations between the parties in an employment relationship. In contrast, a contract for service indicates that an individual is self-employed and performs work under their own terms, rather than being employed under defined conditions with legal protections and specified remuneration.

Facts of the case 

The Appellant (“Bahari Dhow Limited”) is a limited liability company incorporated in Kenya and a registered taxpayer whose principal activity is in hospitality industry and it runs a hotel property in Diani Beach. 

KRA’s Submissions

The KRA stated that it scrutinized the records of the Appellant and discovered that one Jorge Farras was signing off as the General Manager (GM). That further Farras earned a monthly income based on a percentage of sales. However, this income was subjected to withholding tax as opposed to PAYE as required by law.

It added that Jorge Farras resided in a house whose rent was paid by the  BDL. That this housing benefit was also charged as part of the GM’s emoluments. That it was also noted that the GM receives money in form of petty cash, but the A...