Judgment summary
The Tax Appeals Tribunal at Nairobi heard an appeal by Jilk Construction Company Limited against an objection decision of the Commissioner of Legal and Board Services dated 2nd October 2025. The objection decision had partially allowed the Appellant's objection to an assessment of 4th July 2025 totalling Kshs. 1,382,011,664.20, covering Corporation tax, VAT and PAYE.
The Tribunal considered three issues: its jurisdiction to determine alleged constitutional and fair administrative action violations, whether the objection decision was invalidated for failing to give reasons under Section 51(10)(b) of the Tax Procedures Act, and whether the Respondent erred in confirming the assessments.
The Tribunal found it lacked jurisdiction over the constitutional and Fair Administrative Action Act complaints but proceeded to determine the merits of the tax assessment dispute. It held that the objection decision gave adequate reasons and was not defective. On the merits, it found that the Appellant had failed to discharge its burden of proof under Section 56(1) of the Tax Procedures Act in respect of each confirmed item, and dismissed the appeal.
Background
The Appellant is a private limited liability company incorporated in Kenya engaged in civil and general construction, including road and bridge works, building construction, telecommunication civil works, irrigation and dam works, power installation, and manufacture and supply of premix concrete (para 1).
The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 (para 2).
The Respondent audited the Appellant's Corporation tax for January 2019 to December 2023 and PAYE, VAT and Withholding tax for June 2020 to December 2024. An audit notice was issued on 20th February 2025, followed by a pre-assessment notice (para 3).
An assessment notice dated 4th July 2025 demanded a total of Kshs. 1,382,011,664.20, comprising principal taxes of Kshs. 948,612,924.00, penalties of Kshs. 47,430,646.20 and interest of Kshs. 385,968,094.00, broken down as Corporation tax of Kshs. 737,590,491.15, VAT of Kshs. 331,332,834.45 and PAYE of Kshs. 313,088,338.60 (para 4).
The Appellant lodged a manual notice of objection dated 6th August 2025, received on 7th August 2025 (para 5). Following exchanges requesting further documentation between August and September 2025 (para 6), the Respondent issued an objection decision dated 2nd October 2025 partially allowing the objection (para 7). The Appellant then filed a Notice of Appeal dated and filed on 27th October 2025 (para 8).
Core dispute
The Appellant raised six grounds of appeal (para 9). These concerned the disallowed Corporation tax of Kshs. 87,623,590.73 for 2019 relating to an advance payment from Kenya Ports Authority; disallowed invoices JCC/INV/339/EPZA-2019, JCC/INV/319/CGN-2019, JCC/INV/435/EPZA-2020 and JCC/INV/364/EPZA-2019 due to withholding variances allegedly caused by client data entry errors; disallowed invoice JCC/INV/451/CGK-2021 said to be an advance payment leading to double taxation; disallowed invoice JCC/INV/527/KERICHO-2022 said to involve a timing difference; disallowed direct labour of Kshs. 280,899,255.00 for 2023 which the Appellant said should have been Kshs. 74,049,041.90; and an overall contention that the Respondent failed to consider material evidence, rendering the objection decision procedurally unfair.
The Appellant also disputed the treatment of subcontractor fees of Kshs. 35,477,649.00, disallowed in full for want of withholding tax rather than being subjected to a 5% withholding charge, and a VAT variance of Kshs. 649,677,949.00 relating to the Bura Irrigation Project, which the Appellant said should have been zero-rated following a Deed of Assignment dated 27th August 2021 from Afrikon Company Ltd.
The Respondent maintained that it had allowed every item supported by documentary evidence, including duplicated KBL and KPA claims and demonstrated timing differences, but that the residual amounts were confirmed because the Appellant did not supply the specific documents requested, such as proof of payment, general ledgers, final payment certificates, and evidence of payment to casual workers.
Court findings
On jurisdiction, the Tribunal held that it is a creature of statute under Section 3 of the Tax Appeals Tribunal Act, 2013, with jurisdiction under Section 12 confined to tax decisions, and that questions of alleged violation of Article 47 of the Constitution and the Fair Administrative Action Act, 2015 fall to the High Court under Articles 23, 47(3) and 165(3)(b) and (d) of the Constitution. It declined to make findings on those constitutional issues but proceeded to determine the underlying merits question of whether the assessments were excessive or erroneous (paras 38-41).
On the adequacy of reasons under Section 51(10)(b) of the TPA, the Tribunal found that the objection decision addressed each ground in turn, tabulated allowances made for KBL, KPA and Export Processing Zone invoices, derived the unreconciled variance arithmetically, and explained the basis for sustaining the subcontractor fees, VAT and PAYE disallowances. It held the complaint under Section 51(10)(b) was without foundation and the objection decision was not defective (paras 42-45).
On the merits, applying Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act, together with the authorities cited by the Respondent, the Tribunal examined each confirmed item. It found that the Appellant failed to substantiate, with evidence, its recharacterisation of the Kshs. 87,623,490.73 Corporation tax variance as an advance payment from KPA (paras 49-51); that the withholding variance invoices and invoice JCC/INV/451/CGK-2021 remained unsupported by final payment certificates, ledgers or corrective correspondence (paras 52-54); that the subcontractor fees disallowance, though wrongly premised initially on failure to withhold, was properly sustained under Section 15 of the ITA for want of proof of payment and a general ledger (paras 55-57); that the VAT variance for 2022 was properly confirmed because the Appellant did not link specific supplies to the WHVAT certificates or the VAT (Exemption) Order, 2018, and had in fact claimed and benefited from the WHVAT credits (paras 58-61); and that the PAYE assessment on direct labour was properly confirmed because the Appellant did not provide evidence of actual payment to casual workers beyond week 9 of 2020, notwithstanding correction of arithmetical errors reducing PAYE principal tax from Kshs. 235,117,595.00 to Kshs. 228,569,459.39 (paras 62-66). The Tribunal also found no evidence of double taxation, noting that withholding income tax credits, advance tax credits and tax credits had been deducted in arriving at the Corporation tax due (para 67).
Outcome
The Tribunal found that the Appeal was not merited. It dismissed the Appeal, upheld the Respondent's objection decision dated 2nd October 2025, and ordered that each party bear its own costs (para 70).
Major issues / areas of contention
- Whether the Tribunal has jurisdiction to determine alleged violations of Article 47 of the Constitution and the Fair Administrative Action Act, 2015.
- Whether the objection decision dated 2nd October 2025 was invalidated for failing to give reasons under Section 51(10)(b) of the Tax Procedures Act.
- Whether the Respondent erred in confirming the Corporation tax variance of Kshs. 87,623,490.73 for 2019.
- Whether the Respondent erred in confirming withholding variance invoices and invoice JCC/INV/451/CGK-2021 as an advance payment issue.
- Whether the disallowance in full of subcontractor fees of Kshs. 35,477,649.00 for want of withholding tax deduction was properly sustained under Section 15 of the Income Tax Act.
- Whether the VAT variance of Kshs. 649,677,947.00 for 2022 relating to the Bura Irrigation Project and the Deed of Assignment was correctly confirmed.
- Whether the PAYE assessment on direct labour for casual workers, including alleged arithmetical errors, was correctly confirmed.
- Whether the Appellant discharged its burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act.