Hotel staff win as court revokes 16pc VAT service charge

The Employment and Labour Relations Court granted reprieve to hotel workers by overturning the 16 per cent Value Added Tax levied on the service charge by their employers.

The Kenya Hotels and Allied Workers Union moved to court to challenge the levying of VAT on account of the service charge paid to its members.

UNFAIR TAX

The respondents in the suit included Panari Hotel, Jacaranda, Sunset, Southern Sun Mayfair, Siana Springs, The Fairmont Group of Hotels, Serena, Safari Park, The Boma Hotel, Suna Africa and the Nairobi Hilton Hotel.

The union said the hotels had misconstrued the provisions in the VAT Act 2013, insisting that the service charge paid to its members had been subjected to both 16 percent VAT and 30 percent Pay as You Earn, resulting in the elevation of members’ tax burden to 46 percent, compared to 30 percent paid by employees in other sectors.

The workers’ union moved to court seeking a declaration that the 16 percent VAT deducted from service charge payable to its members was unfair.

They also sought an order restraining the hotels from making the deductions.

While delivering the judgment, Justice Maureen Onyango ruled that the hotels' action of recovering VAT from its employees “was not only unlawful but also unreasonable” and directed that any such charges must stop.

DEFENCE

The Federation of Kenya Employers filed a defence on behalf of the Nairobi Hilton, stating that the establishment did not charge the16 per cent VAT service charge.

According to the judge, under Section 13(3) (c) of the VAT Act, 2013, the taxable value of supply includes the value of service charge.

She said that under Section 5(4) of the Act, an employer in the service industry is under obligation to recover VAT on account of the entire amount paid by the employer’s customers.

Kudheiha workers and Kenya Hotel Keepers and Caterers Association were named as interested parties in the suit.

The union sought to compel Sunset, Siana Springs, The Fairmont Group of Hotels, Serena, Safari Park, The Boma Hotel, Suna Africa and Nairobi Hilton and two members of Kenya Hotel Keepers and Caterers Association to avail records for the 16 per cent VAT on their employee’s service charge.

After Golden Jubilee Ltd T/A Crowne Plaza Hotel, Azuri Ltd (Royal Orchid Hotel) failed to present the records, the union urged the court to be allowed to use its own means to get information relating to the deductions.

The union presented to the court details of employees’ VAT claims as follows; Serena Individual Sh9.8 million, Panari Hotel Sh10.4 million, Southern Sun Mayfair Sh15 million and Jacaranda Hotel Sh19.4 million.