Tribunal slashes KRA’s Sh8.3 billion tax claim against Nairobi County

The Tax Appeals Tribunal has handed Nairobi City County a major reprieve after setting aside the bulk of tax assessments issued by Kenya Revenue Authority in a dispute involving more than Sh8 billion in alleged unpaid taxes and statutory deductions.

In a judgment delivered on May 8, 2026, the Tribunal partially allowed the County Government’s appeal and nullified assessments relating to Pay As You Earn (PAYE), withholding VAT, withholding income tax and VAT, while upholding only the National Industrial Training Authority (NITA) levy component.

“The Appeal be and is hereby partially allowed,” the Tribunal ruled in its final orders.

The Tribunal further upheld a reconciled tax liability of Sh130,689,334.10 that had earlier been agreed upon during reconciliation meetings between the county government and KRA.

“The reconciled liability of Sh130,689,334.10 is hereby upheld,” the judgment stated.

The dispute arose after KRA conducted a tax compliance review covering the period between July 2019 and June 2023. Following the audit, the authority issued additional assessments running into billions of shillings, claiming Nairobi County had failed to remit various taxes linked to salaries, supplier payments, county revenue streams and statutory deductions.

Nairobi County challenged the assessments before the Tribunal, arguing that KRA had failed to properly account for reconciled figures, exempt transactions, duplicated invoices, voided entries, internal transfers and taxes that had already been remitted.

The County Government also maintained that some of the revenue streams cited by KRA arose from statutory county functions and therefore did not amount to taxable commercial supplies subject to VAT.

In its determination, the Tribunal faulted KRA for failing to adequately consider reconciliation findings jointly undertaken by both parties during the objection process.

“The Respondent unlawfully issued additional assessments amounting to double assessment on the same tax heads and tax periods,” the Tribunal found.

The judges further held that the objection decision dated April 10, 2025 could not stand in relation to PAYE, withholding income tax and withholding VAT assessments.

“The objection decision dated 10th April 2025 was unlawful, unjustified and invalid,” the ruling stated in part.

On the VAT dispute, the Tribunal agreed with Nairobi County’s position that county revenue generated through statutory and regulatory functions could not automatically be treated as taxable commercial activity.

“The Appellant is not engaged in a business enterprise for profit making but rather carrying out statutory functions,” the Tribunal observed.

However, the Tribunal upheld the assessment relating to NITA levies after finding that Nairobi County had neither specifically objected to that component nor produced evidence showing payment had been made.

“The Appellant did not specifically challenge the NITA assessment nor provide proof of payment,” the Tribunal noted.

The judgment means KRA’s assessments on PAYE, withholding VAT, withholding income tax and VAT have now been set aside, significantly reducing the county’s tax exposure in the dispute.

In its final orders, the Tribunal upheld the NITA levy assessment while affirming the reconciled liability earlier agreed upon by the parties.