NAIROBI, Kenya, Aug 24 – Kenyan taxpayers with outstanding tax liabilities could get relief after the Tax Appeals Tribunal ruled that the Kenya Revenue Authority (KRA) must first consider requests to offset tax debts using available VAT credits before taking enforcement action.
The ruling stems from a dispute between Easton Petroleum Limited and KRA over a VAT liability of Sh12.86 million.
Easton had an available VAT credit of Sh19.71 million and applied on May 14, 2026, to use the credit to settle the outstanding tax.
However, KRA did not process the request and instead issued agency notices to freeze the company’s bank accounts at KCB and Absa.
KRA argued that the VAT credit was excess input tax under the VAT Act and should be carried forward to future tax periods rather than used to settle the debt.
The Tribunal disagreed, saying Section 47 of the Tax Procedures Act gives the Commissioner the authority to apply available tax credits to existing tax liabilities where appropriate.
“Section 47 of the TPA vests the Commissioner with the statutory power to apply available tax credit towards an existing tax liability where the circumstances justify such an off-set,” the Tribunal ruled.
The Tribunal also said the VAT Act’s requirement to carry forward excess input tax does not stop KRA from considering a taxpayer’s formal request for an offset.
It noted that KRA did not dispute Easton’s VAT credit or show that its application was defective.
“Where the taxpayer has disclosed available tax credit that is sufficient to extinguish an admitted tax liability and has formally sought its application through statutory mechanisms, the Commissioner is under obligation to fairly and reasonably determine the request before resorting to enforcement measures,” the Tribunal said.
What the ruling means
The decision could benefit businesses that owe VAT but also have VAT credits held by KRA, helping them preserve cash flow instead of waiting for refunds or carrying credits forward.
However, the Tribunal clarified that the ruling does not create an automatic right to offset every tax debt against a tax credit.
Taxpayers must still submit a proper application, and KRA must consider it before pursuing enforcement.
The ruling is expected to increase pressure on KRA to establish clearer and more predictable procedures for handling tax-credit offset requests while continuing to enforce legitimate tax obligations.
