Murang’a County Wins Fresh Review of KSh212.55 Million KRA Tax Bill

The Tax Appeals Tribunal ordered KRA to reassess Murang’a’s KSh212.55 million PAYE bill after new evidence challenged its calculations. But the county lost its bid to overturn KSh21.18 million in other taxes over a procedural failure.

Murang’a County Government has secured a fresh examination of a KSh212.55 million tax demand following a significant ruling against the Kenya Revenue Authority.

The Tax Appeals Tribunal set aside KRA’s decision confirming the disputed Pay As You Earn assessment.

It ordered the Commissioner of Domestic Taxes to reconsider the liability and issue a fresh decision within 60 days.

However, the county suffered a separate setback over KSh21.18 million in withholding taxes and Value Added Tax.

The Tribunal struck out that part of the appeal because Murang’a had not challenged those assessments through the required statutory process.

The judgement, delivered in Nairobi on October 14, 2026, offered neither side an outright victory.

Instead, it exposed the consequences of inadequate documentation while demanding greater scrutiny of tax calculations.

Disputed Millions

The dispute followed an audit of Murang’a’s tax affairs for the 2022/2023 financial year.

On August 5, 2025, KRA issued assessments covering PAYE, withholding VAT, withholding income tax, withholding rent tax, and VAT.

The Commissioner subsequently confirmed a combined liability of KSh233,733,124, including penalties and interest.

PAYE accounted for KSh212,553,180, comprising KSh172,807,464 in principal tax and additional charges.

Murang’a lodged its objection in September 2025, disputing the employment-tax assessment.

KRA rejected the objection on October 29, 2025, citing missing documents needed to verify the county’s explanations.

The county filed its appeal on November 28, 2025, challenging the assessment’s accuracy and legality.

It argued that KRA had misclassified payments, ignored exemptions, and relied on flawed payroll calculations.

The dispute covered allowances, gratuity, disability exemptions, vehicle benefits, casual workers, and salary arrears.

Murang’a also challenged taxes imposed on grants, transfers, and official telecommunications expenses.

KRA maintained that differences between payroll records, financial statements, and declared returns justified its assessment.

It also argued that the county had failed to substantiate its objection despite repeated requests.

Evidence Emerges

The Tribunal initially accepted that KRA had acted reasonably using information available during the objection process.

Murang’a had received requests for supporting records but failed to provide them within the extended deadline.

However, supplementary documents subsequently changed the evidential position before the Tribunal.

On July 15, 2026, the Tribunal admitted several documents supporting the county’s disputed PAYE calculations.

The records included vehicle allocation policies, employment documents, disability exemption certificates, and payroll reconciliation schedules.

Other documents addressed gratuity arrangements, project grants, imprest surrender records, and telecommunications allocations.

Their admission did not automatically prove that the county’s arguments were correct. However, the Tribunal found the documents relevant to the disputed tax calculations.

KRA’s submissions did not adequately engage with the newly admitted evidence.

The Commissioner continued relying on Murang’a’s earlier failure to provide the documents.

The Tribunal concluded that “the presumption of correctness cannot be maintained in the face of them.”

That finding proved decisive, but it did not establish that the entire assessment was wrong. The Tribunal explained that determining the correct liability required detailed calculations against individual employees and relevant tax periods.

It therefore declined to cancel the disputed PAYE assessment outright or uphold it unchanged. Instead, it returned the matter to KRA for a fresh examination of the supporting records.

Strict Tax Rules

The Tribunal also addressed the county’s failure to pay undisputed taxes when filing its appeal.

Under Section 52(2) of the Tax Procedures Act, taxpayers must pay undisputed tax or arrange payment when appealing assessments.

Murang’a had not demonstrated compliance when it filed its appeal in November 2025.

However, it paid KSh56,232,022 to KRA on June 11, 2026, before the Tribunal heard the dispute.

The payment exceeded the undisputed tax, and KRA did not contest receiving it.

The Tribunal declined to strike out the entire appeal, finding that the statutory purpose had been fulfilled before the hearing.

It also considered that KRA raised the procedural objection late in its written submissions.

Striking out the appeal would have denied Murang’a a hearing on its substantial PAYE dispute.

Nevertheless, the Tribunal stressed that its decision depended on the particular circumstances before it.

A separate procedural failure proved more damaging to Murang’a’s withholding-tax and VAT challenges.

The county had objected only to PAYE, leaving the other assessments outside the original objection process.

The Tribunal held that it lacked jurisdiction to determine those unchallenged tax heads.

Consequently, KSh21,179,943 in withholding taxes and VAT remained confirmed.

Importantly, the Tribunal did not determine whether Murang’a’s own-source revenue was legally subject to VAT.

It declined to consider that argument because the county had not raised it properly during the objection process.

Fresh Assessment

The Tribunal issued detailed directions governing KRA’s reconsideration of the disputed PAYE liability. First, it required the Commissioner to calculate PAYE separately for each employee under Section 37 of the Income Tax Act.

KRA must examine the county’s salary arrears schedules and explain any rejected calculations.

Employees holding valid disability exemption certificates must receive applicable exemptions within statutory limits.

The Commissioner must also determine whether official-duty reimbursements qualify for exemption under Section 5(4)(fa). That provision applies from July 27, 2022, covering most of the financial period under review.

KRA cannot impose PAYE on grants or transfers without identifying recipients and establishing their taxable employment-income status. Any revised principal tax must also carry recalculated penalties and interest.

The Tribunal ordered the Commissioner to issue a fresh objection decision within 60 days of October 14, 2026. KRA may request additional documents, while Murang’a must cooperate fully with the reassessment.

The county’s KSh56,232,022 payment must be credited when determining its outstanding liability. However, the Tribunal declined to compel KRA to issue a tax compliance certificate or permanently restrain enforcement.

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Each party was ordered to bear its own costs.

The ruling delivers a clear lesson for public institutions: tax disputes demand procedural discipline and reliable evidence.

Murang’a has another opportunity to challenge its PAYE liability, but its final exposure remains unresolved.

The decisive question is how much of the disputed KSh212.55 million can survive proper scrutiny.

That answer now rests with KRA’s fresh objection decision, due within the Tribunal’s 60-day deadline.

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