Month: November 2025

The taxation of income earned by insurance tied-up agents has been a contentious subject over the years. At the heart of the dispute lies a fundamental question touching on the nature of the relationship between insurers and their tied-up agents. Are these agents employees or independent contractors?

The Appeal

Our very own Tax team successfully represented CIC Life Insurance Limited (“the Company”) in HCCOMMITA E218 of 2023 Kenya Revenue Authority v. CIC Life Insurance Limited. Being an appeal against a Judgment of the Tax Appeals Tribunal (the “Tribunal”) the Kenya Revenue Authority (“KRA”) challenged the Tribunal’s decision that tied-up agents licensed under the Insurance Act (Cap 487, Laws of Kenya) (the “Insurance Act”) are not employees and consequently, the income they earn from this relationship is not chargeable to Pay As You Earn (“PAYE”).

KRA argued that the relationship between the tied-up agents and the Company amounted to an employer-employee relationship. In support of this position, they relied on the control test i.e., that the tied-up agents are subject to the Company’s control; and that the benefits stipulated in the sample contracts were enjoyed by those in employment relationships.

In response, we demonstrated that a holistic reading of the Employment Act (Cap 226, Laws of Kenya) (the “Employment Act”), the Income Tax Act (Cap 470, Laws of Kenya) (the “Income Tax Act”), and the Insurance Act, together with the relevant regulations, confirmed that in the insurance industry, tied-up agents are independent contractors and not employees. Therefore, KRA’s argument on the benefits offered to tied-up agents held no weight as these benefits are provided for under the Insurance Act and as such these benefits would not convert the relationship to that of an employer and employee.

The High Court’s Decision

At the outset, the Court considered the definitions of the terms “agent” and “employee” in line with the objectives of the Income Tax Act. More particularly, this definitional clarity was pivotal to the broader analysis of whether an agent’s remuneration constituted income arising from employment, thereby subject to PAYE or whether it was income derived from an independent contractual relationship which would instead fall under the scope of Withholding Tax (“WHT”).

Having ascertained these definitions, the Court proceeded to determine the nature of the contractual relationship between the Company and the tied-up agents. In doing so, it referred to the uncontested agreements between the parties as read alongside the definition of an agent under the Insurance Act. The Court subsequently concluded that the agents operating within the insurer’s business cannot, by definition, be employees.

In arriving at this conclusion, the Court affirmed the position in UAP Life Assurance Company Limited v. Commissioner of Domestic Taxes [2019] KEHC 412 (KLR) where the High Court placed emphasis on the harmonious reading of the Insurance Act, Income Tax Act and the Employment Act in order to arrive at the conclusion that tied-up agents do not qualify as employees.​

Similarly, this position was upheld in Commissioner of Domestic Taxes v. Liberty Life Assurance Limited (Income Tax Appeal E108 of 2021) [2023] KEHC 1359 (KLR) (Commercial and Tax) (24 February 2023) (Judgment), where the High Court held that the agents in question were not salaried employees but were instead remunerated through commissions for services rendered. As such, they could not be classified as employees for the purposes of PAYE.

The Significance of this Judgment

The High Court in this decision having concurred with two (2) previous High Court determinations suggests that this matter is now settled, unless overturned by the Court of Appeal. As the question of employment status continues to gain relevance in today’s evolving economy, this Judgment reaffirms that insurance agents, being remunerated through commissions and lacking the hallmarks of employment, are independent contractors. As such, the income they earn is not subject to PAYE.

On 13^th February 2025, the KRA issued a Public Notice on the implementation of the Income tax (Charitable Organizations and Donation Exemption) Rules, 2024 (the “Rules”) in which among many other things, all Charitable Organizations will now be required to comply with the Rules to enjoy tax exemptions.  These Rules will also determine whether such organizations will get tax exemption certificates upon application or renewal.

One of the main concerns of charitable organizations is determining where and how to seek refuge in case their application for tax exemption is declined. The Tribunal in Tax Appeal No. 1545 of 2022 held that it did not have Jurisdiction to entertain appeals arising from rejection of exemption application as the same were neither tax decisions nor appealable decisions.

The Issues in Contention

Our team appealed against the decision wherein we submitted that the rejection decision on the application for exemption was an appealable decision and did not require the Appellant to first lodge a Notice of Objection with the Commissioner. We further submitted that rejection decision was not a tax decision as misconstrued by the Commissioner but an appealable decision and urged the court to apply the plain meaning of “under any other decision made under a tax law” which applied to the rejection decision.

The Commissioner’s team on the other hand argued that the rejection decision did not constitute an appealable decision as defined under section 3(1) of the Tax Procedures Act, Cap 469 A as it was not an objection decision. They further argued that the appropriate forum to challenge the decision was through a judicial review court and that the court should apply the ejusdem generis interpretation rule when interpreting “any other decision made under a tax law”.

The Decision

The High Court, in a Judgement delivered by Lady Justice Rhoda Rutto on 14^th February 2025, in Saleh Mohammed Trust v Commissioner of Domestic Taxes (Income Tax Appeal E221 of 2023) [2025] KEHC 17214 (KLR) (Commercial and Tax) (14 February 2025) (Judgment) – Kenya Law affirmed our argument that any decision made under tax law that is not a tax decision is an appealable decision.

The Court held that the decision to reject the application for exemption is an appealable decision as it falls under “any other decision made under a tax law other- than (a) a tax decision or (b) a decision made in the course of making a tax decision” as defined under Section 3(1) of the Tax Procedures Act, Cap 469 A.

In the appeal to the High Court, the Commissioner argued that the Appellant ought to have challenged the Commissioner’s action by way of Judicial Review. Whereas recognizing this as an available option, the Court in its determination affirmed that pursuant to the provisions of Section 9(2)(1) of the Fair Administrative Action Act,  the High Court or subordinate court, shall not review an administrative action or decision under the Act unless the mechanisms, including internal mechanisms for appeal or review and all remedies available under any other written law  have been exhausted. The Appellant was therefore required to exhaust all available mechanisms, that is, appeal to the Tribunal that is vested with the requisite jurisdiction to hear an appealable decision.

This same position was affirmed in, in the case of Krystalline Salt Limited v Kenya Revenue Authority [2019] KEHC 6939 (KLR) – Kenya Law, see para 69  thereto.

The Court further determined that the appeal be heard on merit by the Tribunal and referred the matter back to the Tribunal for hearing of the substantive appeal as the issue of jurisdiction was now settled.

Significance of the Judgement

It is now settled, (unless the same is overturned by the Court of Appeal) that when a Charitable Organization’s Application for tax exemption is declined, such a decision can be appealed directly to the Tribunal without requiring the applicant to first lodge a Notice of Objection to the rejection decision as it is an appealable decision. This decision clarifies the dilemma that such entities face when contemplating their next action after receiving a rejection of their tax exemption application.

That the digital age has ushered in unprecedented concerns over the right to privacy and the use of personal data is now old news. Virtually all states have set up legal frameworks to safeguard the right to privacy and to govern the use of personal data, including putting into place appropriate compliance and enforcement mechanisms. In Kenya, the right to privacy is entrenched under Article 31 of the Constitution. The Data Protection Act of 2019 (the DPA) establishes the Office of the Data Protection Commissioner (the ODPC) as the institutional mechanism to protect personal data from misuse, as well as to oversee the implementation of and be responsible for the enforcement of the DPA. The ODPC is empowered to investigate any complaints relating to the misuse of personal data and to undertake the necessary enforcement measures through the various regulations made under the DPA, such as the Data Protection (Complaints Handling and Enforcement Procedures) Regulations, 2021 (the Complaints and Enforcement Regulations).

Notwithstanding the ODPC’s clear mandate set out in the DPA, its jurisdiction was recently challenged through a Constitutional Petition filed in the High Court in which it was contended that the ODPC had exceeded its authority by using powers reserved for the High Court. In addition, the Petition argued that the mandate of the ODPC overlapped with that of the Kenya National Human Rights and Equality Commission (the KNHREC), which is the body empowered to investigate and deal with any violations of the Bill of Rights, including the right to privacy.

In dismissing the Petition, the High Court (Mwamuye J) affirmed the authority and mandate of the ODPC in the enforcement of data protection law in Kenya.

A. Background

In the Petition, namely,  Arunda v Office of the Data Protection Commissioner & another; Data Privacy and Governance Society of Kenya (Interested Party) (2025) KEHC 12262, the constitutionality of Section 56 of the DPA and Regulation 14 (5) of the Complaints and Enforcement Regulations was disputed, with the Petitioner contending that these provisions granted judicial powers to the ODPC, consequently infringing upon the exclusive jurisdiction conferred upon the High Court under Articles 23 (1) and 165 (3) (b) of the Constitution. The Petitioner further contended that the mandate of the ODPC overlapped with that of the KNHREC, resulting in confusion as to constitutional and institutional oversight.

B. Issues

The key issues considered in the Petition included the following:

i. Whether the ODPC usurps the jurisdiction of the High Court?

The Petitioner argued that the ODPC’s powers to investigate and issue binding decisions, including compensation, amounted to the usurpation of judicial authority vested in the High Court. The Court disagreed and found that the ODPC’s power to investigate and make administrative findings does not amount to a judicial function, but rather that the ODPC plays more of a complementary role within the wider legal framework relating to the right to privacy. The Court found that the ODPC played an important and constitutionally permissible function for the realisation of the right to privacy under Article 31 of the Constitution, subject to the supervisory jurisdiction of the High Court as preserved under Section 64 of the DPA.

ii. Whether Section 56 of the DPA and Regulation 14(5) of the Complaints and Enforcement Regulations are unconstitutional?

Closely related to the first issue highlighted above, the Petition also raised the issue of constitutionality of Section 56 of the DPA and Regulation 14 (5) of the Complaints and Enforcement Regulations, asserting that these provisions granted judicial powers to the ODPC. Similarly dissuaded by this argument, the Court found that these provisions do not confer judicial powers upon the ODPC but rather authorise administrative and regulatory functions which were necessary to safeguard the rights under Article 31 of the Constitution. The Court returned the finding that these provisions merely provide the necessary enforcement capacity to a specialized agency, while retaining the existing judicial oversight through the appellate mandate granted to the High Court.

iii.  Whether the doctrines of exhaustion and constitutional avoidance applied to bar first instance access to the High Court?

The Court upheld that the doctrines of exhaustion and constitutional avoidance remain applicable. Consequently, the Petitioner was deemed to have improperly bypassed the ODPC’s complaint mechanism, which ought to have been followed in the first instance. The Court reaffirmed the doctrine of exhaustion, which requires persons to first utilise available statutory remedies before approaching the Courts, unless exceptional circumstances are shown to exist, which was not done in this case.

The Court also echoed the doctrine of constitutional avoidance, which discourages premature constitutional litigation when statutory remedies are adequate and available.

iv. Whether there was an overlap between the roles of the ODPC and the KNHREC?

The Petitioner argued that the mandate of the ODPC overlapped with that of the KNHREC, which the Petitioner contended was the body empowered to investigate and deal with any human right violations, including the right to privacy. The Court however took the view that the mandate of the ODPC does not conflict or overlap with that of the KNHREC, but rather the two institutions are designed to complement each other within Kenya’s constitutional and statutory human rights’ enforcement architecture.

C. Conclusion

Overall, the High Court’s decision affirms the power and jurisdiction of the ODPC in the enforcement of data protection and safeguarding of the right to privacy. The decision upholds that the legal architecture provided by the DPA is functional, constitutional and necessary for the effective enforcement of the law relating to data protection.

This case highlights and emphasises the significance of establishing a framework that includes specialised oversight over the increasingly complex issues surrounding data governance, including the collection, storage and use of personal information for addressing privacy-related concerns within a rapidly evolving digital world.

In the 20th Issue of Legal & Kenyan, we featured an article titled “Advancing Green Governance: Standards, Finance and Sustainability in Africa’s Corporate Sector 2.0”, in which we discussed the manner that adoption of the International Financial Reporting Standards Disclosure of Sustainability-related Financial Information (IFRS S1) and Climate-related Disclosures Standards (IFRS S2) collectively (the Standards) that were issued by the International Sustainability Standards Board (ISSB) were being adopted by corporations in Africa in the absence of clear frameworks and/or guidelines. In the abovementioned article, we discussed green financing as an effective tool for uptake of the Standards reportable under IFRS S1 and made a case for streamlining of internal operational procedures in an environmental friendly manner as a good metric reportable under IFRS S2.

It is against this backdrop of the absence of clear frameworks and guidelines that Kenyan corporations (especially those in the banking sector) undertook to ensure compliance with the Standards in the best manner they could mirroring international best practice standards. However, from April 2025, with the issuance of Kenya’s Green Finance Taxonomy (KGFT) and the Climate Risk Disclosure Framework for the Banking Sector (the Framework)by the Central Bank of Kenya (CBK), our jurisdiction now has a clear way forward in respect of compliance with the Standards.

KGFT has been developed initially for the banking sector. However, it is intended to serve as an entry point to the larger financial sector in Kenya. KGFT a standardised classification system that identifies and categorises the investment options which are environmentally sustainable and, by extension, those that are not. KGFT defines a minimum set of assets, projects and activities that are eligible to be defined as “green” in line with international best practices and Kenya’s national priorities. The users of the KGFT may utilise it to track, monitor and demonstrate their credentials of their green activities (popularly termed as ESG) in a more confident and efficient manner.

The framework was issued in furtherance of the CBK’s Guidance on Climate–Related Risk Management, which it issued in 2021, and the issuance of IFRS S2 by the ISSB in 2023. Section 33(4) of the Banking Act, (Cap. 488)Laws of Kenya, empowers the CBK to guide institutions to maintain a stable and efficient banking and financial system. As such, CBK, in exercise of its statutory power, has formulated the framework to act as the guide through which the banking sector in Kenya shall identify, classify and disclose relevant, decision useful climate–related information consistently and comparably. The framework is fully aligned with the Institute of Certified Public Accountants of Kenya (ICPAK) recommendations on the IFRS S2, which it did designate as the official standard for climate risk reporting in November 2024.

Kenya’s Green Finance Taxonomy

KGFT has adopted the green European Union Taxonomy for Sustainable Activities as a reference framework, specifically in assessing the substantial contribution criteria for climate change mitigation and adaptation. KGFT seeks to align with Kenya’s National Policy on Climate Finance with regards to climate investment. KGFT is comprised of five (5) parts being: introductory breakdown about the KGFT, User Guidance, Catalogue of Sectors and Activities, Technical Screening and concludes with appendices. At the heart of its formulation is its alignment with international best practice in respect of green finance. This guarantees the users of the taxonomy of its adaptability and alignment with international standards.

Indeed, KGFT’s objective is to first serve as a reference for sustainable progress of the Kenyan economy without social or environmental trade-offs in a bid to increase the consistency of green finance flows and foreign investments. Second, KGFT users can be confident that taxonomically aligned economic activities meet a high threshold of commitment to climate change mitigation and the Kenyan trajectory towards a sustainable economy. Finally, the taxonomy establishes a uniform and transparent performance tracking and reporting mechanism.

There is process for determining taxonomy alignment under KGFT which offer guidance that will help users determine the alignment of their economic activity with KGFT. The expected result is a binary one either taxonomy–aligned or not. Once alignment is assessed based on the details of this screening criteria, taxonomy-aligned financial flows can be calculated and determined. Under KGFT, this determination of taxonomy alignment can be done at an economic activity level. However, taxonomy–aligned finance can only be disclosed at an asset/activity, project, entity, and/or portfolio level.

Ultimately, at the heart of KGFT is its role in contributing to multifaceted sustainable development within the financial sector in Kenya. It is anticipated to provide useful information for measuring, monitoring and reporting on ESG performance and impact of taxonomy– aligned activities.

Kenya’s Climate Risk Disclosure Framework for the Banking

Sector

The Framework issued by CBK was issued against the backdrop of its earlier issued Guidance on Climate–Related Risk Management, and it is complementary to the Green Finance Taxonomy. With this issuance, banks can improve risk management, leading to more informed lending decisions and increased resilience. Transparent disclosures also attract investors seeking sustainable investments, while strategic planning that considers climate risks fosters long-term sustainability.

For investors, the Framework provides the information needed to assess the financial implications of climate change on potential investments. Through the issuance of the Framework, the banking sector in Kenya is well poised to play a pivotal role in fostering a more resilient and sustainable future. The Framework has adopted sophisticated methodologies for risk assessment and management, and has broader reporting requirements such as those set out in the Taskforce on Climate Disclosures (TCFD).

The Framework highlights the exposures of the banking sector’s credit portfolios to “inherent” climate–related risks. These risks can materialize in the short–term, medium–term and/or in the long–term and are largely classified into either physical or transitional risks. With respect to climate governance, CBK has adopted an expectation that is “fit for purpose”. That is ensuring that proper governance structures are in place to properly assess climate–related risks and opportunities, take appropriate strategic decisions to manage them, and determine relevant goals and targets along with progress monitoring mechanisms.

Under the Framework, banks are required to have in place robust governance arrangements that enable them to effectively identify, manage, monitor, and report the risks they are, or might be, exposed to both on an individual and consolidated basis. Whereas this can take several forms depending on the relevant institution’s business model and other factors, there is a requirement on them to demonstrate how their governance body, which can be materialised in the form of a board, committee within the board structure or equivalent body charged with the responsibility of governance and oversight of climate–related risks and opportunities. In doing so, the nexus between the board involvement and management involvement set out in the Framework is achieved.

In formulating their business strategies, institutions are expected to understand the impact of climate–related risks on the business environment in which they operate. The rationale behind climate–related financial disclosures on strategy is to provide a comprehensive understanding of how an entity manages climate–related risks and opportunities.

Ultimately, the Framework presents various opportunities which may be beneficial to Kenya’s financial sector. It presents an opportunity for market discipline and the sustainable strengthening of financial stability of the markets; the broader reporting requirements help in proactive identification and management of risks which impacts decision- making, and the integration of sustainability–related considerations in operational structures.

Upshot

In our previous article on this topic, published in the 20th Issue of this publication, we made a case for the formation of an African sustainable investment alliance in a bid to chart an African way forward as regards the formulation of a harmonised standard on corporate reporting of sustainability within corporate institutions, green finance and climate–related disclosures. This was against the backdrop of the absence of a framework.

Now that KGFT and the Framework have been issued, their integration is important considering that it shall ensure the inflow of finances in the form of investments, and it shall strengthen the alignment with Kenya’s sustainable agenda, all in a bid to ensure Kenya’s financial system is more resilient.

Kenya now has leaped forward within Africa, joining ranks with South Africa and Nigeria; and has taken the bold step to formulate its own standards and frameworks which it shall rely on to guide its financial sector regarding this issue. The implementation of these Frameworks issued by CBK follow a phased approach which ensures institutions have adequate time to transition and adopt robust internal processes. It additionally aligns with ICPAK’s Roadmap for Adoption of Sustainability Disclosure Standards.

Beginning with a voluntary reporting period, which is currently done by the majority of the Tier–1 banking institutions in Kenya, the ultimate goal is to have mandatory reporting and disclosure beginning on or after January 2028. The successful implementation will require collaborative efforts from various stakeholders such as government, regulators, financial institutions and investors.

This is a major development in the sustainable corporate reporting space in Kenya. This now places Kenya on the forefront and trailblazer against fellow African countries in respect of corporate sustainability.