Wamuri Ltd v Commissioner of Domestic Taxes (Tax Appeal E588 of 2025) [2026] KETAT 163 (KLR) (13 July 2026) (Judgment)

Case Information

Court: Tax Appeals Tribunal at Nairobi

Case number: Tax Appeal No. E588 of 2025

Citation: Wamuri Ltd v Commissioner of Domestic Taxes (Tax Appeal E588 of 2025) [2026] KETAT 163 (KLR) (13 July 2026) (Judgment)

Applicant: Wamuri Limited

Respondent: Commissioner of Domestic Taxes

Jurisdiction: Kenya

Judgment date: 13 July 2026

Judgment Summary

The Tribunal considered an appeal by Wamuri Limited, a company letting residential units, against the Commissioner's Objection Decision dated 21st May 2025, which fully rejected the Appellant's objection and confirmed additional assessments for the period 2019 to 2023 covering PAYE, Corporation Tax, Value Added Tax and Withholding Tax [4], [6].

The Tribunal framed four issues: whether the Respondent was justified in confirming the corporation tax assessment for 2019, the VAT assessment, the PAYE assessment, and the withholding tax assessment [75].

On corporation tax, the Tribunal held that the Appellant did not discharge the burden of proving that the disallowed commission expense of Kshs 2,740,000 was wholly and exclusively incurred in the production of its 2019 income or that it was adequately supported by primary records, and confirmed the assessment [86].

On VAT, the Tribunal found that the years 2024 and 2025 fell outside the assessed period and could not be entertained. For 2023, it found the Respondent was justified in bringing the commercial rent to charge under Section 12 of the VATA, but was not justified in confirming the 2023 VAT without crediting the payments already made [89], [91].

On PAYE, the Tribunal found the Appellant partially discharged its burden. It accepted evidence that a director paid taxes of Kshs 12,688,624 on the company's behalf and held the assessment was excessive to that extent, but upheld the balance of the assessment founded on unsupported directors' drawings [97], [98], [99].

On withholding tax, the Tribunal found the Appellant advanced no argument and led no evidence contesting the assessment, and confirmed it [101].

Background

The Appellant is a private limited company in the business of letting out residential units [1]. The Respondent is the Commissioner of Domestic Taxes, an officer of the Kenya Revenue Authority [2].

By a letter dated 3rd September 2024, the Respondent issued an audit verification notice under Section 59(1) of the Tax Procedures Act Cap 469B [3]. By a letter dated 12th March 2025, the Respondent issued its audit report findings raising additional assessments for the period 2019 to 2023 with respect to PAYE, Corporation Tax, Value Added Tax and Withholding Tax amounting to Kshs. 69,750,460 inclusive of interest and penalties [4].

The Appellant lodged an objection by a letter dated 27th March 2025 [5]. On 21st May 2025, the Respondent issued its Objection Decision fully rejecting the objection and confirming the taxes as assessed [6]. Dissatisfied, the Appellant filed this Appeal by a notice of appeal dated 5th June 2025 [7], and lodged a memorandum of appeal dated 5th June 2025 and filed on 9th June 2025 [8].

Core Dispute

The dispute concerned whether the Respondent was justified in confirming additional assessments for the period 2019 to 2023.

On Corporation Tax, the Appellant contended that the Respondent wrongly disallowed commission or management fees of Kshs 2,740,000 for 2019, which it said were wholly and exclusively incurred in producing rental income under a rent collection agency agreement with Hearth and Home Limited dated 15th February 2016 [77]. The Respondent maintained the expense was unsupported and that no reconciliation of the management fees claimed in the returns against the audited financial statements was provided [79].

On VAT, the Appellant sought credit for VAT paid monthly in 2023, 2024 and 2025 totalling Kshs 7,184,807, arising from advance rent received under a new lease with Vivo Energy [87]. The Respondent maintained the commercial rent received was not accounted for as required by Section 12 of the VATA [88].

On PAYE, the Appellant contended that directors' drawings were wrongly treated as emoluments, that taxes of Kshs 12,688,624 paid by a director on the company's behalf should be deducted, and that charging the balance amounted to double taxation [92]. The Respondent treated the drawings as emoluments because supporting invoices, bank statements and corresponding accounting entries were not provided [93].

On Withholding Tax, the Respondent assessed tax on payments to professionals not subjected to withholding tax under Section 35(3) of the ITA [100].

Court Findings

On corporation tax, the Tribunal applied Sections 15(1), 16(1)(a) and 54A(1) of the ITA, holding that a taxpayer must establish that expenditure was incurred and was incurred wholly and exclusively in the production of income [82]. It found the rent collection agency agreement did not of itself prove that the specific sum of Kshs 2,740,000 was computed in accordance with its terms, was actually paid, and bore the attendant withholding tax [83]. It held that audited financial statements are secondary, not primary, documents and, standing alone, were insufficient to discharge the evidential burden [84]. It found the Appellant did not discharge its burden and confirmed the assessment [86].

On VAT, the Tribunal held that the assessment covered 2019 to 2023 and that 2024 and 2025 fell outside the assessed period and were not properly before it [89]. For 2023, it noted the Respondent did not specifically controvert the assertion that VAT was being paid monthly, and that the Appellant filed a general ledger report evidencing payment. It held the payments should be brought to account and the demand revised [90].

On PAYE, the Tribunal applied Section 56(1) of the TPA and Section 30 of the TAT Act on burden of proof [95], [96]. On the first limb it was satisfied, from payment slips and the director's bank statement, that the director paid taxes of Kshs 12,688,624 on the company's behalf, so the assessment was excessive to that extent [97]. On the second limb it found the balance of drawings was unsupported and unstructured, and upheld its treatment as emoluments [98].

On withholding tax, the Tribunal found the Appellant led no evidence contesting the assessment, which stood unrebutted, and confirmed it [101].

Outcome

The Tribunal found the Appeal partially meritorious [103]. It partially allowed the Appeal and varied the Objection Decision dated 21st May 2025 as follows: the Corporation tax assessment for 2019 was upheld; the Respondent was directed to revise the VAT for 2023 by reference to the general ledger report so as to credit payments already made; the Respondent was directed to revise the PAYE assessment to take into account the taxes of Kshs 12,688,624 paid by the director on behalf of the company, with the remainder of the PAYE assessment upheld; and the Withholding tax assessment was upheld [103].

The Respondent was directed to revise the Objection Decision in line with the orders within thirty days of the date of the Judgment, and each party was to bear its own costs [103].

Major Issues / Areas of Contention

• Whether the Respondent was justified in confirming the corporation tax assessment for the year of income 2019.
• Whether the Respondent was justified in confirming the Value Added Tax assessment.
• Whether the Respondent was justified in confirming the PAYE assessment.
• Whether the Respondent was justified in confirming the Withholding tax assessment.

Read the full judgment (PDF) (Source: AfricanLII)