https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/295

**REPUBLIC OF KENYA** **IN THE TAX APPEALS TRIBUNAL AT NAIROBI** **APPEAL NO. E980 OF 2025** **HOWARD HUMPHREYS (EAST AFRICA) LIMITED................................APPELLANT** **VERSUS** **COMMISSIONER OF DOMESTIC TAXES..............................................RESPONDENT** **JUDGMENT** **BACKGROUND** 1. The Appellant is a private limited liability company incorporated in Kenya under the Companies Act whose principal activity is the provision of engineering design, consultancy and management services in East Africa. 2. The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469, Laws of Kenya. The Kenya Revenue Authority is charged with the responsibility of, among others, the assessment, collection, accounting and general administration of tax revenue on behalf of the Government of Kenya. 3. Fees charged by the Appellant for its professional services were subjected to withholding tax (WHT) at the rate of 5% pursuant to Section 35(3)(f) of the Income Tax Act (ITA). Owing to substantial accumulated tax losses, the Appellant was unable to utilise the WHT tax credits against its Corporation tax liability, and the credits accumulated as overpaid tax. 4. On 30th March 2023, the Appellant lodged an income tax refund claim for the years of income 2017, 2020 and 2021 amounting to Kshs. 47,910,316.00. The claim was referred to a refund audit on 26th June 2023. 5. Vide a letter dated 27th March 2024, the Respondent communicated its refund audit findings confirming a refundable amount of Kshs. 42,210,316.00, being the amount claimed less an additional WHT assessment of Kshs. 5,700,000.00 for the year of income 2020. 6. Dissatisfied in part with the audit findings, the Appellant lodged Tax Appeal No. E497 of 2024 which was referred to Alternative Dispute Resolution and settled vide a consent dated 28th June 2024 and subsequently adopted by this Tribunal. The consent confirmed the sum of Kshs. 42,210,316.00 as refundable to the Appellant and Kshs. 760,353,330.00 as the Appellant’s adjusted accumulated tax losses carried forward as at 31st December 2021. 7. The Respondent did not effect a cash refund. Instead, the Appellant’s application for a cash refund was rejected, with the rejection communicated *vide* an email of 21st July 2025 whose stated reason directed the Appellant to “apply for an offset of the overpaid tax resulting from WHT certs in the claimed period.” The Appellant accordingly applied for and was issued with, Overpayment Adjustment Vouchers (OAVs) under Section 47(1)(a) of the Tax Procedures Act (TPA), being OAV No. OAV7020230000022302 dated 18th December 2024 for Kshs. 31,163,043.00 in respect of the years 2020 and 2021, and OAV No. OAV7020230000034361 dated 28th May 2025 for Kshs. 16,747,273.00 in respect of the year 2017. 8. Between July 2024 and June 2025, the Appellant utilised the OAVs through the iTax system to offset its PAYE liabilities amounting to Kshs. 39,380,133.00 and VAT liabilities amounting to Kshs. 3,801,580.00, a total utilisation of Kshs. 43,181,713.00. 9. On 19th June 2025, the Cabinet Secretary for the National Treasury and Economic Planning issued a circular, Ref. TNT/ZZ/129/010(7), addressed to the Commissioner General of the Kenya Revenue Authority, guiding that approved refunds should not be offset against taxes on individual income paid to employees by any entity, withholding taxes, or taxes, fees and levies on imported goods, but should be strictly offset against the taxpayers’ own outstanding tax debts and future tax liabilities, which the circular described as the company's Corporation tax due, VAT payable on its supplies and excise duty payable on its supplies. 10. On 9th August 2025, when the Appellant sought to utilise its OAV to settle its PAYE liability for the month of July 2025 amounting to Kshs. 5,049,507.13, it discovered that the functionality for offsetting PAYE had been disabled on the iTax platform following the said circular. The Appellant’s subsequent PAYE liability for August 2025 of Kshs. 5,065,216.24 was likewise incapable of settlement through the OAVs, and interest of Kshs. 151,642.30 accrued on the two months’ PAYE liabilities. 11. *Vide* a letter dated 13th August 2025, received by the Respondent on even date, the Appellant applied to the Commissioner of Domestic Taxes, for activation of its iTax portal to allow the offset of its PAYE liabilities against the approved overpaid tax. The Respondent did not respond to the application. 12. Aggrieved by the Respondent’s decision effected on 9th August 2025 denying it the utilisation of its approved overpaid tax against PAYE, the Appellant lodged a Notice of Appeal dated and filed on 8th September 2025. **THE APPEAL** 1. The Appeal is premised on the Memorandum of Appeal dated 17th September 2025 and filed on 24th September 2025 wherein the Appellant raised the following grounds of appeal: 2. That the Respondent erred in law by unlawfully and arbitrarily depriving the Appellant of its property, being an ascertained refund of overpaid tax of Kshs. 42,210,316.00, in contravention of Article 40(3) of the Constitution of Kenya, 2010. 3. That the offset of the ascertained refund of overpaid tax was denied without lawful justification, notice, or procedural fairness, and in breach of the Appellant's right to fair administrative action under Article 47 of the Constitution. 4. That the Respondent erred in law by denying the Appellant the statutory right to offset the overpaid taxes against its August PAYE tax liability of Kshs. 5,065,216.24 and any future tax liabilities, contrary to Section 47(7) of the Tax Procedures Act, 2015. 5. That the Respondent erred in law and fact by accruing interest of Kshs. 151,642.30 on outstanding tax liabilities, in contravention of Section 47(7) of the Tax Procedures Act, 2015. 6. That the Respondent acted in breach of the Appellant's legitimate expectation, protected by Article 47 of the Constitution and Section 47(7) of the Tax Procedures Act, that duly ascertained overpaid taxes would be applied against its tax liabilities. 7. That the Respondent erred in law by acting contrary to the principles of public finance under Article 201(b)(i) of the Constitution, which requires that the burden of taxation be shared fairly. 8. That the Respondent's actions, decisions, and omissions are unconstitutional, unlawful, unreasonable, and against the principles of natural justice. **THE APPELLANT’S CASE** 1. The Appellant’s case is premised on its Statement of Facts dated 17th September 2025 and filed on 24th September 2024 together with the documents annexed thereto, and its written submissions dated and filed on 23rd March 2026. 2. The Appellant averred that its accumulated tax losses as at 31st December 2024 stood at Kshs. 917,576,250.00 as per its 2024 income tax return, and that its total unutilised withholding tax (WHT) credits as per the iTax ledger stood at Kshs. 34,876,754.15 as at 8th September 2025. It averred that, given the magnitude of its tax losses, it has no realistic prospect of utilising the WHT credits against Corporation tax, and that its only avenues of recovery are a cash refund, which the Respondent rejected, or the offset of the credits against its other tax liabilities. 3. The Appellant identified three issues for the Tribunal’s determination: first, whether it had a statutory right under Section 47 of the TPA to apply the ascertained and approved overpaid tax towards the payment of PAYE and future tax liabilities, and whether the Respondent’s reliance on a Treasury Circular unlawfully restricted that right; secondly, whether the Respondent violated its right to fair administrative action under Article 47 of the Constitution and breached the doctrine of legitimate expectation; and thirdly, whether the Respondent unlawfully deprived it of its property contrary to Article 40(3) of the Constitution. 4. On the first issue, the Appellant submitted that Section 47(1)(a) of the TPA confers on a taxpayer who has overpaid a tax under *any tax law* the right to apply to offset the overpaid tax against *the taxpayer’s outstanding tax debts and future tax liabilities*, and that the phrase is unqualified as to tax head. It submitted that the Respondent’s attempt to limit the offset to corporation tax, VAT and excise duty is inconsistent with both the language and the intent of the statute. The Appellant relied on **Law Society of Kenya v Kenya Revenue Authority & Another (Petition No. 39 of 2017) [2017] KEHC 8539 (KLR)** where the Court held that: *“Where the words of a statute are plain, precise and unambiguous, the intention of the Legislature is to be gathered from the language of the statute itself and no external aid is admissible to construe those words.”* 1. The Appellant submitted that Section 47 of the TPA sets out two conditions for an offset or refund, namely that the person must have an overpayment of tax and must apply within the prescribed timelines, both of which it satisfied. It further submitted that its overpayment was ascertained and approved by the Respondent through the refund audit, confirmed by the consent in **Tax Appeal No. E497 of 202**4, and crystallised in the OAVs issued through iTax; that once approved, the overpayment became a usable tax credit which the Respondent was bound to give effect to; and that the credit, being the Appellant's asset in the form of money, ought to be available for its use without restriction. 2. The Appellant drew a distinction between tax incidence and tax impact, submitting that while the economic incidence of PAYE and VAT falls on the employee and the consumer respectively, the legal incidence, in terms of the statutory obligation to account, the compliance burden, the amendment of returns, the application for refunds, and the exposure to penalties and interest, falls on the employer and the supplier. It submitted that PAYE and VAT are treated alike as agency taxes under the tax laws, such that if one is eligible for offset the other must equally be, since the legal obligation falls on the same person, being the Appellant. In this regard, the Appellant cited Section 83(1)(a) of the TPA, which imposes on the employer the penalty for late submission of a return in respect of employment income, demonstrating that the Appellant remains liable to account for PAYE whether or not the employees are paid their salaries. 3. The Appellant further submitted that in the event of any mistake in the submission, computation, or payment of agency taxes, it is the employer or supplier who bears the statutory obligation to seek amendments, refunds or offsets, including refunds of tax paid in error under Section 47A of the TPA, which confirms that the remittance obligation and the attendant rights belong to the employer. 4. On the Treasury Circular, the Appellant submitted that administrative circulars are subordinate instruments which cannot override, amend, or restrict statutory provisions. It relied on Article 94(5) of the Constitution which provides that no person or body, other than Parliament, has the power to make provision having the force of law in Kenya except under authority conferred by the Constitution or legislation. The Appellant submitted that the Respondent cannot, through a circular, convert a statutory entitlement into a discretionary privilege, and that once Parliament has spoken through Section 47 of the TPA, administrative policy must yield to the law. It submitted that the Respondent's decision effectively varied the operation of Section 47 of the TPA without legislative authority. 5. On the accrual of interest, the Appellant submitted that Section 47(7) of the TPA is explicit that where the Commissioner notifies a taxpayer that an application under subsection (1)(a) has been ascertained and applies the overpaid tax to offset an outstanding tax, interest, or penalties, shall not accrue on the amount applied from the date of the notification, and that the interest of Kshs. 151,642.30 charged on the July 2025 and August 2025 PAYE liabilities was therefore levied without legal basis. 6. On the second issue, the Appellant submitted that Article 47 of the Constitution guarantees every person administrative action that is expeditious, efficient, lawful, reasonable, and procedurally fair, as reinforced by Section 4 of the Fair Administrative Action Act. It submitted that the Respondent, having previously permitted the utilisation of the tax credits against PAYE of Kshs. 39,380,133.00 and VAT of Kshs. 3,801,580.00 through approved iTax-generated vouchers, created a legitimate expectation that the Appellant would be permitted to continue utilising the ascertained credits in a similar manner, which expectation could not be frustrated absent an overriding change in the law or matters of inordinate public interest, there having been no change in the law governing tax refunds and offsets. The Appellant relied on the Supreme Court's decision in **Petition No. 20 of 2020 (E021 of 2020)** on the forms legitimate expectation may take and on **Menengai Oil Refineries Limited v Commissioner of Domestic Taxes (Tax Appeal E003 of 2021) [2022] KEHC 11634 (KLR)**. 7. The Appellant further submitted that the Respondent failed to comply with the requirements of procedural fairness in that it gave no reasons for the deactivation of the iTax functionality, accorded the Appellant no opportunity to be heard, and imposed a restriction affecting the Appellant's tax position without due process. It cited **PZ Cussons East Africa Limited v Kenya Revenue Authority [2013] KEHC 1698 (KLR)** on the right to written reasons under Article 47(2) of the Constitution, and **Republic v Kenya Revenue Authority Ex Parte M-Kopa Kenya Limited [2018] KEHC 9059 (KLR)** on the need to give reasons and afford a hearing before an adverse decision is issued. 8. On the third issue, the Appellant submitted that Article 40(1) of the Constitution guarantees every person the right to acquire and own property of any description; that Article 40(3) prohibits the deprivation of property except in accordance with the law; and that Article 260 defines property to include money, choses in action and negotiable instruments. It submitted that its ascertained tax credits, of which OAVs valued at Kshs. 34,876,754.15 remained unutilised, constitute funds belonging to the Appellant held by the Respondent, which had already been deducted from the Appellant's iTax ledger upon approval of the offset applications, thereby converting the credits into a quantifiable and utilisable amount capable of settling tax obligations. It submitted that by unilaterally denying it access to and utilisation of the credits without any statutory authorisation or lawful process, the Respondent effectively deprived the Appellant of its property contrary to Article 40(3) of the Constitution. **Appellant’s Prayers** 1. The Appellant prayed that the Tribunal grant the following orders: a) This Appeal be allowed; b) The Appellant be allowed to pay or offset PAYE and any other outstanding taxes, including future tax liabilities, by utilising all Overpayment Adjustment Vouchers approved by the Respondent to the date of the Appeal; c) The decision of the Respondent effected on 9th August 2025 denying the Appellant the right to offset the ascertained amount of overpaid tax against any current and future liabilities be quashed; d) The interest, fines and penalties levied without legal basis be vacated; e) Costs of and incidental to the Appeal be awarded to the Appellant; and f) Any other or further order(s) as the Tribunal may deem appropriate to grant in the circumstances of the case. **THE RESPONDENT’S CASE** 1. The Respondent’s case is premised on its Statement of Facts dated and filed on 24th October 2025 together with the documents annexed thereto, and its written submissions dated and filed on 26th March 2026. 2. The Respondent averred that it did not deny the Appellant the offset of its approved overpaid taxes as such, since the Appellant was able to apply for and obtain the OAVs and to offset the overpaid tax against its outstanding tax debts and future tax liabilities, including Value Added Tax. The dispute, according to the Respondent, is confined to what the outstanding tax liabilities of a company entail, and specifically whether a company can use its approved tax refunds to offset the PAYE liabilities of its employees. 3. The Respondent submitted that the deduction of PAYE attaches to an individual tax obligation, with the liability for the tax resting on the employee and not the employer, the employer being merely an agent of the Respondent for the purposes of collection and accounting. The Respondent placed reliance on Sections 2, 3 and 5 of the ITA, noting that Section 2 defines an *“employer”* as including any resident person responsible for the payment of, or on account of, any emoluments to any employee; that Section 3 charges income tax for each year of income upon all the income of a person; and that Sections 3(2)(a)(ii) and 5 bring within the charge to tax gains or profits from any employment or services rendered, being the income of the employee. 4. The Respondent further relied on Section 37 of the ITA, which obligates an employer paying emoluments to an employee to deduct tax therefrom and account for the tax so deducted, and which provides at subsection (4) that: - *“Any tax deducted under this section from the emoluments of an employee shall be deemed to have been paid by that employee and shall be set-off for the purposes of collection against tax charged on that employee in respect of those emoluments in any assessment for the year of income in which such emoluments are received.”* 1. From the foregoing provisions, the Respondent submitted that the employer merely deducts and accounts for the collected taxes on behalf of the employee, and that at no point does that action confer on the employer any legal or equitable interest in the deducted taxes. The Respondent relied on **Everret Aviation Limited v Kenya Revenue Authority (Through the Commissioner of Domestic Taxes) [2013] KEHC 6352 (KLR)**, where the Court observed that the employer was obligated by statute to deduct tax by way of PAYE and to remit it to the Respondent, and on Section 39 of the ITA, which provides that an amount of tax deducted under Sections 35, 36 or 37 shall be deemed to have been paid by the person chargeable with that tax and shall be set off for the purposes of collection against the tax charged on that person for the year of income in respect of which it was deducted. 2. On who may apply for a refund of overpaid PAYE under Section 47 of the TPA, the Respondent submitted that the right and proper person to make such an application is the taxpayer who has overpaid the tax, being, in the case of PAYE, the employee. It relied on the definition of *“taxpayer”* under Section 3 of the TPA as *“a person liable for tax under a tax law whether or not they have accrued any tax liability in a tax period”*, and submitted that since taxes deducted under Section 37 of the ITA are deemed to be paid by the employee, it is only proper that it is the employee who seeks a refund or offset under Section 47 of the TPA, an avenue which the Respondent averred remains open to the employees. 3. The Respondent submitted that it is the employees who provided the services from whose remuneration PAYE was deducted, and that in the absence of any claim by the employees, the Appellant would be unjustly enriched were it to benefit from the deducted taxes. It relied on **Equator Bottlers Ltd v Commissioner of Domestic Taxes (Tax Appeal 1561 of 2022) [2024] KETAT 57 (KLR)**, where this Tribunal held that the right to claim a refund of withheld funds is exercisable by the party that offered the service, and that in the absence of such a claim, the claimant would be unjustly enriched by the refund. 4. The Respondent also relied on Rule 12 of the Income Tax (P.A.Y.E.) Rules, which provides that where the Respondent is to recover taxes, the employer is deemed to have been appointed an agent of the employee; and on **Cofftea Agencies Limited v Commissioner of Domestic Taxes (2016)**, where the Tribunal held that an agent ought not to claim input VAT on behalf of the principal, which the Respondent submitted reinforces the principle that where a tax is a statutory deduction like PAYE, the employer’s role is that of an agent or collector, and such payments are not expenses or liabilities of the employer. 5. The Respondent submitted that the import of Section 47(1) of the TPA is that a taxpayer can only offset overpaid taxes against its own outstanding tax debts and future tax liabilities, including instalment taxes and Value Added Tax payable on imports, and that PAYE does not constitute a tax liability of the employer, the employer being appointed only as an agent to deduct and account for a statutory deduction from the employees’ income. 6. It submitted that were the Appellant to be granted the power to use its refunds to offset PAYE liabilities, this would lead to a situation where the Respondent would have to settle refunds emanating from both employers and employees under Section 47, occasioning revenue loss contrary to Article 210(1) of the Constitution, which provides that no tax or licensing fee may be imposed, waived or varied except as provided by legislation, and would run amok the entire tax refund system, which allows persons who have been charged the tax to apply for refunds. 7. The Respondent further submitted that the Appellant should not be allowed to seek solace in a procedural tax law where the substantive tax law does not confer any right of refund upon it. It relied on **Magenta (K) Limited v Commissioner of Domestic Taxes (High Court Income Tax Appeal No. E244 of 2024)**, where the Court held that substantive tax statutes must be strictly interpreted, that a construction of procedural law that results in the imposition of tax where none is authorised by substantive law would amount to substantive injustice, and conversely that an interpretation of a procedural tax law that allows a taxpayer to avoid liability where tax is legally due under a substantive tax law would be unjust and contrary to public policy. 8. On the National Treasury circular, the Respondent averred that the circular of 19th June 2025 merely guided that Section 47 of the TPA permits the offsetting of approved overpaid amounts against the taxpayer’s own outstanding tax debts and future tax liabilities, being the company’s Corporation Tax due, VAT payable on its supplies and excise duty payable on its supplies, and that the iTax functionality was disabled pursuant to that guidance. The Respondent further averred that legitimate expectation cannot contradict clear provisions of the law. **Respondent's Prayers** 1. The Respondent prayed that the Tribunal: a) Dismisses the Appeal in its entirety; b) Upholds the refund decision dated 9th August 2025 rejecting the offset against PAYE; and c) Orders the Appellant to pay the costs of the Appeal. **ISSUES FOR DETERMINATION** 1. The Tribunal has considered the Parties’ pleadings, documentation and submissions and is of the considered view that the issues falling for its determination are as follows: 2. *Whether the Tribunal has jurisdiction to determine the alleged violations of Articles 40(3) and 47 of the Constitution;* 3. *Whether the Appellant is entitled under Section 47(1)(a) of the Tax Procedures Act, 2015 to utilise its ascertained and approved overpaid tax to offset its PAYE liabilities, and whether the Respondent’s reliance on the National Treasury circular to deny such utilisation was lawful; and* 4. *Whether the interest of Kshs. 151,642.30 that accrued on the July 2025 and August 2025 PAYE liabilities ought to be vacated.* **ANALYSIS AND FINDINGS** 1. The Tribunal proceeds to analyse the issues as hereunder. 2. **Whether the Tribunal has jurisdiction to determine the alleged violations of Articles 40(3) and 47 of the Constitution** 3. The Appellant’s first and second grounds of appeal, and a substantial portion of its submissions, invite the Tribunal to find that the Respondent’s decision violated the Appellant’s right to fair administrative action under Article 47 of the Constitution and unlawfully deprived it of its property contrary to Article 40(3) of the Constitution. Before delving into those invitations, the Tribunal must first satisfy itself that it is clothed with the jurisdiction to entertain them, for as was famously held in **Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1989] KLR 1**, jurisdiction is everything and without it, a court or tribunal must down its tools. 4. This Tribunal is a creature of statute, established under Section 3 of the Tax Appeals Tribunal Act, 2013, and its jurisdiction under Section 12 of that Act is confined to hearing appeals against tax decisions and appealable decisions made under the tax laws. The interpretation of the Constitution and the determination of questions of denial, violation, or infringement of the rights and fundamental freedoms in the Bill of Rights are, by dint of Articles 23 and 165(3)(b) and (d) of the Constitution, the preserve of the High Court. The Tribunal therefore has no jurisdiction to grant declarations that the Respondent violated Articles 40(3) and 47 of the Constitution, and it declines the invitation to do so. 5. That notwithstanding, the Tribunal is not thereby disabled from determining the Appeal. The gravamen of the dispute, namely whether the Respondent’s decision of 9th August 2025 denying the Appellant the utilisation of its approved overpaid tax against PAYE accords with Section 47 of the TPA, is a question of statutory interpretation squarely within the Tribunal’s remit, and its resolution disposes of the Appeal without recourse to the constitutional questions. 6. The Tribunal accordingly proceeds to determine the appeal on that footing, and having done so, finds it unnecessary to interrogate the doctrine of legitimate expectation, which in any event cannot arise contrary to, or expand rights beyond, the clear provisions of the law. 7. **Whether the Appellant is entitled under Section 47(1)(a) of the Tax Procedures Act, 2015 to utilise its ascertained and approved overpaid tax to offset its PAYE liabilities, and whether the Respondent's reliance on the National Treasury circular to deny such utilisation was lawful.** 8. Section 47(1) of the TPA provides as follows: - *“(1) Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner in the prescribed form—* *(a) to offset the overpaid tax against the taxpayer's outstanding tax debts and future tax liabilities including instalment taxes and value added tax payable on imports; or* *(b) for a refund of the overpaid tax— (i) in the case of income tax, within five years from the date on which the tax was overpaid; or (ii) in the case of any other tax, within twelve months from the date on which the tax was overpaid.”* 1. The following facts are not in dispute. The Appellant overpaid income tax through WHT credits it could not utilise to settle Corporation tax on account of its accumulated losses. The overpayment was ascertained by the Respondent through a refund audit whose findings were communicated on 27th March 2024, and confirmed by the consent adopted in **Tax Appeal No. E497 of 2024**. The Respondent declined a cash refund and directed the Appellant to the offset route, whereupon the Respondent's own iTax system issued the OAVs. 2. Between July 2024 and June 2025, the Respondent accepted the utilisation of those OAVs against the Appellant’s PAYE and VAT liabilities in the sum of Kshs. 43,181,713.00. What changed on 9th August 2025 was not the law, but the disabling of the PAYE offset functionality on iTax following the National Treasury circular of 19th June 2025. The dispute therefore distils to a single question of statutory interpretation: whether the Appellant's PAYE obligation is among “the taxpayer’s outstanding tax debts and future tax liabilities” within the meaning of Section 47(1)(a) of the TPA. 3. The principles that guide the Tribunal are well settled. In **Cape Brandy Syndicate v Inland Revenue Commissioners [1921] 1 KB 64**, Rowlatt J. stated that in a taxing Act one has to look merely at what is clearly said; there is no room for any intendment, no equity about a tax, no presumption as to a tax, and nothing is to be read in or implied. Similarly, in **Law Society of Kenya v Kenya Revenue Authority & Another (supra)**, relied upon by the Appellant, the Court affirmed that where the words of a statute are plain, precise and unambiguous, the intention of the Legislature is to be gathered from the language of the statute itself and no external aid is admissible. 4. The Tribunal notes that the language of Section 47(1)(a) is plain: it speaks of “the taxpayer’s outstanding tax debts and future tax liabilities” without qualification or restriction as to tax head, and indeed extends the offset expressly to instalment taxes and value added tax payable on imports with the use of the word “including” thereby leaving the list of what constitutes the taxpayer’s outstanding tax debts and future tax liabilities inconclusive. Had Parliament intended to confine the offset to instalment tax and import VAT, would have said so. It did not. 5. The Tribunal refers to the holding by High Court in the case of **Commissioner of Domestic Taxes v Bank of Africa Limited (Civil Appeal E127 of 2020) [2023] KEHC 1036 (KLR) (Commercial and Tax)** **(17 February 2023),** where it was held: - *“40. When interpreting the law, the court should bear in mind that the legislature was conscious of the circumstances it was legislating on and what it the law was intended to cover. Where the definition of the words is inconclusive, it creates an ambiguity.* *41. In* ***Govind Saran Gang Saran v Commissioner of Sates Tax and others 1985 AIR 1041; 1985 SCR (3) 1885****, the Supreme Court of India observed that the taxing statute identifies the subject of the levy, or the taxing event, indicates the person on whom the levy is imposed, who has to pay the tax, the rate imposed and the measure or value to which the rate will be applied to compute the tax liability.* *The court then stated:* *If these components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme dealing with any of those components of the levy, will be fatal to its validity.* *42. Where the legislature uses an inconclusive definition of what constitutes financial services, like in this case, it is not open to this court to say that the service Bank of Africa rendered to cardholders, as the issuer, was not a financial service. If that were to be the case, then the law, as enacted, would be ambiguous which would then be interpreted in favour of the taxpayer.”* 1. The question then becomes whether PAYE constitutes a tax debt or tax liability of the employer. The Respondent’s case is that it does not, PAYE being the employee's tax which the employer merely collects as an agent. The Tribunal has anxiously considered this argument and finds that it conflates two distinct legal relationships that the ITA deliberately keeps apart: the charge to tax on the employee’s employment income on the one hand, and the employer’s statutory obligation to deduct, account for, and remit the tax to the Commissioner on the other. 2. Section 37(1) of the ITA provides that an employer paying emoluments to an employee shall deduct therefrom and account for tax thereon. Section 37(2) provides that where an employer fails to deduct the tax or to account for tax deducted, the Commissioner may impose a penalty, and, significantly, that the provisions of the Act relating to the collection and recovery of tax shall also apply to the collection and recovery of such penalty as if it were tax due from the employer. Section 83(1)(a) of the TPA, cited by the Appellant, imposes the penalty for late submission of a return in respect of employment income on the person required to submit that return, being the employer. Rule 12 of the Income Tax (P.A.Y.E.) Rules, relied upon by the Respondent, itself confirms that recovery of unremitted PAYE is directed at the employer. The scheme of the law is therefore unmistakable: once emoluments are paid, the obligation to deduct, account for and remit PAYE crystallises upon the employer, and the debt owed to the Commissioner in respect of that PAYE is owed by, and is recoverable from, the employer. The Commissioner does not, and cannot, pursue the employee for PAYE duly deducted. 3. Section 37(4) of the ITA, upon which the Respondent leaned heavily, does not assist the Respondent. That provision deems tax deducted from the emoluments of an employee to have been paid by that employee and available for set-off against the tax charged on that employee. Its purpose is protective of the employee: it secures the employee's credit for the tax suffered at source, so that the employee is not called upon to pay the same tax twice. It answers the question of who receives the credit for the deducted tax; it does not answer the question of who owes the remittance to the Commissioner. If anything, the deeming provision reinforces the Appellant’s position; once the employee is deemed to have paid, the only party who can be in default vis-à-vis the Commissioner in respect of the deducted amounts is the employer. 4. Section 39 of the ITA operates in the same protective register and is similarly of no avail to the Respondent. The holding in **Everret Aviation Limited** (supra) that the employer “was obligated by statute to deduct tax by way of PAYE and to remit it” is, with respect, entirely consistent with this analysis: the obligation to remit is the employer’s own statutory obligation. 5. The Tribunal likewise finds the Respondent’s unjust enrichment argument, anchored on **Equator Bottlers Ltd** (supra) and **Cofftea Agencies Limited** (supra), to be misplaced on the facts of this Appeal. Those decisions concerned a withholder or agent seeking to claim, for its own benefit, a refund or credit belonging to the principal from whose money the tax was drawn. The Appellant makes no such claim. It does not seek a refund of PAYE deducted from its employees; it seeks to settle its own remittance obligation to the Commissioner using its own ascertained income tax credit, which arose from withholding tax suffered on its own consultancy fees. The employees’ position is wholly unaffected: their PAYE stands deducted and, by dint of Section 37(4), stands deemed paid and credited to them, whatever the mode by which the employer settles its account with the Commissioner. No employee money is diverted, and no enrichment, unjust or otherwise, accrues to the Appellant beyond the utilisation of a credit that is indisputably its own. 6. Neither is the Tribunal persuaded that the offset occasions revenue loss contrary to Article 210(1) of the Constitution. An offset under Section 47(1)(a) neither imposes nor waives any tax; it merely sets off, in account, a debt the Commissioner owes the taxpayer against a debt the taxpayer owes the Commissioner. The exchequer receives full value: the PAYE liability is extinguished to the same extent that the Respondent's refund obligation is discharged. 7. The Respondent’s reliance on the **Magenta (K) Limited** case (supra) is, in the Tribunal's view, a double-edged sword. That decision cautioned against constructions of procedural law that impose tax where none is authorised, or that allow a taxpayer to escape liability where tax is legally due. Neither mischief arises here. No tax is imposed, and none is escaped; the PAYE remains fully accounted for and settled. On the contrary, it is the Respondent’s construction, which would leave the Appellant's ascertained credit sterile in the face of a live statutory right of set-off, that strains the coherence of the tax system which the Court in Magenta was at pains to protect. 8. That leaves the National Treasury circular of 19th June 2025, which was the proximate cause of the disabling of the iTax functionality. The circular is an administrative instrument. Article 94(5) of the Constitution provides that no person or body, other than Parliament, has the power to make provision having the force of law in Kenya except under authority conferred by the Constitution or legislation. 9. It is the Tribunal’s considered view that a circular cannot amend, restrict, or vary the operation of Section 47(1)(a) of the TPA; if the offset of approved refunds against PAYE is to be excluded, that is a matter for legislative amendment. Indeed, the circular itself records that during the preparation of the Fiscal Budget for the Financial Year 2025/2026, the National Treasury received stakeholder submissions proposing that Section 47 of the TPA be amended, an acknowledgment that the policy position it espouses is not carried by the statute as presently enacted. The Tribunal must apply the law as it is, not as the National Treasury may wish it to be. 10. The Tribunal is fortified in its conclusion by the Respondent’s own conduct. The Respondent’s iTax system generated the OAVs, and from July 2024 to June 2025, accepted their application against PAYE without protest, in the total sum of Kshs. 39,380,133.00. While administrative practice cannot confer rights that the statute withholds, it is telling that the Respondent’s own contemporaneous construction of Section 47(1)(a) of the TPA accorded with its plain meaning until the circular intervened. 11. Consequently, the Tribunal finds that the Appellant’s PAYE obligations constitute the Appellant’s outstanding tax debts and future tax liabilities within the meaning of Section 47(1)(a) of the TPA; that the Appellant, whose overpayment was ascertained, approved and crystallised in duly issued OAVs, is entitled to utilise the same to offset its PAYE liabilities; and that the Respondent’s decision effected on 9th August 2025 denying such utilisation on the strength of the National Treasury circular was not anchored in law and cannot stand. 12. **Whether the interest of Kshs. 151,642.30 that accrued on the July 2025 and August 2025 PAYE liabilities ought to be vacated.** 13. Section 47(7) of the TPA provides as follows: - *“Where the Commissioner notifies a taxpayer that an application under subsection (1)(a) has been ascertained and applies the overpaid tax liability to offset an outstanding tax in accordance with subsection (2)(a), interest or penalties shall not accrue on the amount applied to offsetting the outstanding tax liability from the date of the notification.”* 1. The Appellant held ascertained and approved OAVs whose unutilised balance of Kshs. 34,876,754.15 far exceeded the July 2025 and August 2025 PAYE liabilities of Kshs. 5,049,507.13 and Kshs. 5,065,216.24 respectively. The Appellant filed its PAYE returns within time and sought to settle the liabilities through the OAVs in the manner it had done for the preceding months. The liabilities remained unsettled for one reason only: the Respondent had disabled the offset functionality. 2. Having found that the disabling of the functionality was unlawful, it follows that the interest of Kshs. 151,642.30 which accrued in consequence thereof was occasioned entirely by the Respondent’s own unlawful act. A party cannot be permitted to profit from its own wrong, and it would be contrary to both Section 47(7) of the TPA and elementary fairness to visit upon the Appellant interest on liabilities it stood ready, willing and able to settle through a mode of payment the law entitled it to use. The interest of Kshs. 151,642.30 is accordingly for vacation. **FINAL DECISION** 1. The upshot to the foregoing analysis is that the Appeal is merited, and accordingly, the Tribunal proceeds to issue the following Orders: 2. The Appeal be and is hereby allowed; 3. The Respondent’s decision effected on 9th August 2025 denying the Appellant the utilisation of its ascertained and approved overpaid tax to offset its PAYE liabilities be and is hereby set aside; 4. The Appellant is entitled to utilise the Overpayment Adjustment Vouchers duly approved and issued by the Respondent to offset its PAYE liabilities and any other outstanding tax debts and future tax liabilities in accordance with Section 47(1)(a) of the Tax Procedures Act; 5. The interest of Kshs. 151,642.30 accrued on the July and August 2025 PAYE liabilities be and is hereby vacated; and 6. Each party to bear its own costs. 7. It is so ordered. **DATED and DELIVERED** at **NAIROBI** this………**10th** ……...day of…..…**July**……2026 **……………………………..….** **DR RODNEY O. OLUOCH** **CHAIRPERSON** **……………………………… ……..….……..……………..** **CYNTHIA MAYAKA DR. ERICK KOMOLO MEMBER MEMBER** **……………………………..….** **ABDULLAHI DIRIYE** **MEMBER**