NAIROBI, Kenya — The Tax Appeals Tribunal has handed Nairobi City County Government a major legal victory after dramatically reducing a disputed Sh8.3 billion tax demand issued by the Kenya Revenue Authority in a long-running tax dispute.
In a ruling delivered on May 8, the Tribunal set aside the bulk of KRA’s assessments covering alleged unpaid PAYE, VAT, withholding tax, and statutory levies for the period between 2019 and 2023.
KRA had accused the county government of failing to remit employee deductions and transaction-based taxes, issuing assessments totalling more than Sh8.3 billion following a compliance audit.
However, Nairobi County challenged the demand, arguing that the assessment contained duplicate entries, exempt transactions, internal fund transfers, and amounts that had already been remitted to the tax authority.
The county further argued that KRA had ignored reconciliation meetings previously conducted between the two parties, where revised figures had allegedly been agreed upon.
In its decision, the Tribunal agreed with the county’s position and faulted KRA for failing to properly account for reconciliation documents submitted during the dispute resolution process.
“The Respondent’s assessment was grossly misstated, without due regard for reconciling items,” the Tribunal ruled.
The Tribunal further noted that earlier reconciliation meetings between KRA and the county government had produced agreed figures, but those findings were later disregarded in KRA’s final assessment notices.
According to the ruling, the disputed figures presented by KRA were significantly inflated and did not accurately reflect the county’s actual tax obligations.
The Tribunal ultimately upheld only the National Industrial Training Authority (NITA) levy component and confirmed a reconciled tax liability of Sh130.7 million, an amount both parties had previously agreed upon during reconciliation discussions.
“The reconciled liability of Sh130,689,334.10 was confirmed,” the ruling stated.
The additional assessments relating to PAYE, VAT, and withholding taxes were set aside, effectively wiping out most of the multibillion-shilling demand against the county government.
The ruling marks a significant setback for KRA in one of the high-value tax disputes involving a devolved unit of government.
It also underscores the growing importance of reconciliation procedures and proper documentation in tax enforcement disputes involving public institutions.
