Judgment summary
The Appellant, an individual seconded to the Judiciary of South Sudan under an intergovernmental arrangement coordinated by the Kenya-South Sudan Liaison Office (KESSULO), was issued additional income tax assessments by the Respondent on 2nd April 2024 amounting to KShs. 3,028,599.02 inclusive of penalties and interest for the period 2016 (paragraph 3).
The Appellant objected on 24th April 2025, and on 20th June 2025 the Respondent issued an Objection Decision fully rejecting the objection and confirming principal tax due of KShs. 1,561,333 (paragraphs 4 to 5).
The Tribunal considered two issues: whether the Respondent erred in subjecting the Appellant's remuneration earned during her secondment to tax, and whether the Respondent correctly assessed the Appellant on income for the 2016 year of income (paragraph 47).
The Tribunal held that neither the Memorandum of Understanding between Kenya and South Sudan dated 9th March 2007 nor the Appellant's contract of engagement could create a statutory exemption from Kenyan income tax, and that the Respondent had correctly assessed the Appellant's income for the six-month period of her engagement in 2016. The appeal was dismissed and the Objection Decision upheld.
Background
The Appellant was engaged on an intergovernmental secondment to the Judiciary of South Sudan between 2011 and June 2016, under terms coordinated by the Government of Kenya through KESSULO (paragraph 9).
Her remuneration during this period was treated as tax-exempt in line with her contracts of employment, KRA administrative practice, and the bilateral Memorandum of Understanding between Kenya and South Sudan dated 9th March 2007 (paragraph 10). She stated that from 2011 to 2015 no domestic tax was assessed or demanded, and returns filed during that period reflected nil balances or credits (paragraph 11).
Her employment ended in June 2016, with her final salary paid by RTGS (paragraph 12). In 2018 she applied for a Tax Compliance Certificate, which was denied, alerting her to alleged outstanding liabilities; her auditors, M/s Mokua Onwonga & Company, wrote to the Commissioner on 26th March 2018 contesting disputed ledger entries for 2012 to 2014 (paragraphs 13 and 16).
It was not until 2024 that the Appellant received clarity that the assessment related to the 2016 year of income (paragraph 14). The Respondent issued additional assessments on 2nd April 2024 amounting to KShs. 3,028,599.02 inclusive of penalties and interest, and later confirmed principal tax of KShs. 1,561,333 in the Objection Decision of 20th June 2025 (paragraphs 3 and 5).
Core dispute
The Appellant argued that the Respondent erred by taxing her on presumed full-year 2016 income despite her employment ending in June 2016, and that her remuneration was exempt from tax under Article XI(5) of the 2007 Kenya-South Sudan MOU and under Clause 3 of her contract of engagement, which stated her consolidated salary would be exempt from tax while working in South Sudan (paragraphs 7(a) to 7(c)).
She further argued that the Respondent had departed without justification from a consistent administrative practice of not taxing her identical income between 2011 and 2015, contrary to Article 47 of the Constitution, and that the Respondent relied on erroneous legacy tax entries for 2012 to 2014 despite formal correction requests made in March 2018 (paragraphs 7(d) and 7(e)).
The Respondent contended that Article XI of the MOU only exempted remuneration from taxation in the Receiving Party's territory, namely South Sudan, and did not exempt the income from Kenyan tax. It argued that the Appellant's income did not qualify for exemption under Paragraph 11 of the First Schedule to the Income Tax Act because the Cabinet Secretary had not certified the income as exempt, and that the Appellant bore the burden of proof under Section 56(1) of the Tax Procedures Act, which she had failed to discharge (paragraphs 25 to 31, 44).
Court findings
The Tribunal held that taxation is a creature of statute and that neither the Commissioner nor the Courts may impose or exempt tax except as expressly provided by legislation, citing Cape Brandy Syndicate v Inland Revenue Commissioners and Commissioner of Domestic Taxes v Barclays Bank of Kenya Ltd (paragraphs 52 to 54).
On the MOU, the Tribunal found that Article XI exempted remuneration from taxation only within the territory of the Receiving Party, South Sudan, and did not extend to Kenya as the Sending State. The Tribunal declined to imply terms into the international agreement beyond its express wording, relying on Samuel Kamau Macharia & Another v Kenya Commercial Bank Ltd & 2 Others (paragraphs 57 to 59).
On the contractual clause exempting the consolidated salary from tax, the Tribunal held that under Article 210(1) of the Constitution and Section 13 of the Income Tax Act, no tax may be waived except as provided by legislation, and that government representations in a contract could not create a statutory exemption where Parliament had not enacted one, citing Kenya Revenue Authority & Commissioner of Domestic Taxes v Kenya Nut Company Limited (paragraphs 61 to 64).
The Tribunal agreed that Paragraph 11 of the First Schedule to the Income Tax Act, which requires Cabinet Secretary certification, did not apply because the Appellant's remuneration was employment income rather than a management fee, professional fee, royalty or interest, but found that this did not automatically render the income exempt, and no other statutory exemption applied (paragraphs 65 to 69).
On the quantum issue, the Tribunal examined the Appellant's 2016 Income Tax Return, which reflected gross employment income of KShs. 5,400,000 and principal tax of KShs. 1,561,133, matching the amount confirmed in the Objection Decision. Payment vouchers for January to May 2016 showed a monthly salary of KShs. 900,000, which over the six-month engagement produced the same aggregate figure of KShs. 5,400,000. The Tribunal found the Respondent had not assessed on a presumed full calendar year but on the actual six-month engagement income (paragraphs 73 to 75).
The Tribunal held that the Appellant had not discharged her burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, citing Kenya Revenue Authority v Man Diesel & Turbo SE, Kenya and Commissioner of Domestic Taxes v Trical and Hard Limited, since her own documents corroborated rather than contradicted the assessment (paragraphs 76 to 78).
Outcome
The Tribunal found the Appeal devoid of merit and dismissed it. The Respondent's Objection Decision dated 20th June 2025 was upheld, confirming principal tax of KShs. 1,561,133. Each party was ordered to bear its own costs (paragraphs 80 to 81).
Major issues / areas of contention
- Whether the Respondent erred in subjecting the Appellant's remuneration earned while on secondment to the Judiciary of South Sudan to tax.
- Whether the Memorandum of Understanding between Kenya and South Sudan dated 9th March 2007 exempted the Appellant's income from Kenyan income tax.
- Whether a contractual clause stating that the Appellant's salary would be exempt from tax while working in South Sudan could create a statutory tax exemption under Kenyan law.
- Whether Paragraph 11 of the First Schedule to the Income Tax Act applied to the Appellant's employment income.
- Whether the Respondent correctly assessed the Appellant's income for the 2016 year of income, given that her employment ended in June 2016.
- Whether the Appellant discharged her burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act.