Kiambu County has lost its bid to overturn a Sh156 million tax dispute with the Kenya Revenue Authority (KRA) after the Tax Appeals Tribunal dismissed its appeal as invalid. The tribunal ruled that the county must settle the taxes owed, citing its prior agreement with KRA.
The tribunal, chaired by Robert Mutuma, found that Kiambu County had initially acknowledged part of the tax liability and even made partial payments before later reneging on the agreement. As a result, the county’s appeal was deemed invalid for failing to adhere to the agreed-upon payment plan.
According to the ruling, a valid appeal requires the appellant to either pay the undisputed taxes or enter into a payment arrangement with the tax authority. Kiambu County had entered an arrangement but failed to honor it, rendering its appeal inadmissible.
KRA conducted an audit of Kiambu County’s tax records and issued a tax demand of Sh612 million on April 18, 2023. The tax claims included Pay As You Earn (PAYE) for gratuity payments, motor vehicle benefits, secondary employees, airtime benefits, withholding income tax, and Value Added Tax (VAT).
Following an objection from the county government, a review by the Commissioner of Domestic Taxes reduced the disputed tax amount. The new assessment required Kiambu to pay Sh319.3 million in PAYE and VAT, along with Sh54 million in withholding tax.
After negotiations, Kiambu County argued that only Sh102.5 million was due, while KRA insisted on a revised figure of Sh156.2 million. The county made partial payments of Sh15 million in May 2022 and Sh12.5 million in June 2023, committing to clear the remaining amount in seven installments. However, instead of continuing with the agreed payments, Kiambu County took the matter to the Tax Appeals Tribunal.
Kiambu County challenged KRA’s claim, stating that withholding tax should not apply to certain transactions, such as medical and laboratory equipment, inter-entity transfers, and food supplies. The county also disputed the taxman’s demand for PAYE on pool cars used by government officers for official functions.
Furthermore, the county government argued that levies charged to individuals for accessing county services already constituted a form of taxation, thus exempting them from additional VAT under the VAT Act.
Despite these arguments, the tribunal ruled against the county, upholding KRA’s tax claim. The ruling reinforces the requirement for county governments to comply with tax obligations once they enter into agreements with KRA.
With the dismissal of the appeal, Kiambu County is now obligated to settle the Sh156 million tax bill, adding financial pressure to its budget allocations.
