Month: April 2026

As a cornerstone of Kenya’s economy, the construction industry is characterised by complex and multi-phased contractual processes involving numerous sectoral players and significant sums of money. Inevitably, disputes in the construction industry arise and perennial issues such as payment disputes, cash flow bottlenecks, project delays, and protracted litigation plague the industry. Persistent inefficiencies in payment systems underscore the urgent need for dispute resolution mechanisms that are fast, cost-effective, and readily enforceable.

Article 159(2)(c) of the Constitution of Kenya, 2010, provides for the use of Alternative Dispute Resolution (ADR) mechanisms, such as reconciliation, mediation, arbitration, and traditional dispute resolution mechanisms.

Although adjudication is not expressly mentioned as an ADR mechanism, it is still contemplated under Article 159(2)(c) of the Constitution. Therefore, it can be argued that Kenyan courts are called upon to promote all ADR mechanisms, including adjudication.

The Adjudication Rules of the Chartered Institute of Arbitrators (Kenya Branch) define adjudication as “a dispute resolution procedure based on the decision-making power of an impartial, third party neutral natural person known as an adjudicator to reach a fair, rapid and inexpensive decision upon a dispute arising under a construction contract.”

The Construction Payments Adjudication Bill (the “Bill”), introduced through Sessional Paper No. 4 of 2024, on the National Alternative Dispute Resolution Policy, seeks to officially recognise adjudication as a dispute resolution mechanism in Kenya, for payment disputes in construction projects. The Bill was recently subjected to public participation, as required under Article 10 of the Constitution.

This article examines the resolution of payment disputes both historically and prospectively, with regard to the Bill.

 

A Walk Down Memory Lane

Payment disputes in construction projects often involve clients, contractors, subcontractors, manufacturers, and/or suppliers, among other stakeholders. Such disputes typically arise from delays in works, time extensions, cash flow shortages, cost overruns, tendering and quality of works, among others. If left unresolved, these disputes can derail the progress of the project and strain the relationship between the parties.

Such disputes have for a long time been subjected to arbitration, as the main ADR method in the construction contracts. This has been undertaken pursuant to the provisions of the Arbitration Act (Cap. 49) Laws of Kenya.

In rare instances where parties have sought to undertake adjudication, they have relied on standard form contracts, such as the International Federation of Consulting Engineers (FIDIC), with the necessary amendments to suit their individual needs.

Such clauses have included the use of Dispute Boards in construction projects as envisaged under FIDIC. Specifically, in its 2017 Red Book, FIDIC allows the use of Dispute Avoidance and Adjudication Boards (DAAB) in managing and avoiding disputes arising from construction projects. In this regard, parties have adopted ad hoc dispute adjudication boards or appointed the boards within timelines stipulated in the contract.

Ad hoc boards are set up at the onset of the project and remain in place throughout its duration, to assist the parties in resolving disputes arising in the course of the project. The DAABs further assist parties to avoid disputes by facilitating and improving communication, thereby encouraging resolution of contentious issues before their escalation into full-blown disputes (conflict avoidance). While DAAB decisions are binding, they remain subject to review in arbitration if challenged.

 

A New Legal Dispensation

The Bill seeks to promote timely payments and equitable remedies for disputes in Kenya’s construction sector by strengthening the adjudication practice with greater efficiency and accountability. It introduces statutory adjudication as a fast, cost-effective mechanism for resolving payment disputes. Statutory adjudication enables cash flow continuity in ongoing projects while preserving the parties’ rights to later pursue arbitration or litigation. If implemented effectively, the Bill has the potential to transform dispute resolution in the construction industry.

The Following are Key Highlights of the Bill:

1. The Bill applies to all construction contracts that either expressly provide for adjudication or where the parties, with mutual consent, submit disputes for adjudication. Conversely, the Bill shall not apply where the construction contracts prescribe a different procedure for the resolution of payment disputes or does provide for adjudication but under a different framework.
2. Construction contracts must contain an agreement in writing to adjudicate payment disputes. The agreement shall be deemed to be in writing if the parties sign a contract to this effect or have an exchange of correspondence between themselves in relation to the works being undertaken and adjudication as the payment disputes resolution mechanism.
3. Once enacted, the Bill shall apply to construction contracts regardless of whether the works are undertaken wholly or partly within Kenya, thereby extending its scope to cross-border projects.
4. The Bill covers a wide range of construction works, including building and engineering works, procurement, surveying, design, landscaping, and material supply, thereby ensuring comprehensive inclusion of all stakeholders.
5. The adjudication process involves:

• Issuance of a payment claim by the contractor;
• Issuance of either a payment schedule or a schedule to pay less by the employer (this schedule must contain reasons and alternative amounts if contesting the claims);
• Issuance of a notice of reference to adjudication by an aggrieved party;
• Filing of a reference to the adjudication body, which then appoints the adjudicator. The adjudicators will be appointed from a panel maintained by a designated adjudication authority. Provisions on their appointment, independence, remuneration and code of conduct aim to uphold professionalism and impartiality. The National Dispute Resolution Council has the mandate of accrediting adjudication bodies, issuing codes of practice, and regulating the sectoral standards. Parties will be jointly and severally liable for adjudicator fees and expenses. The adjudicators will be entitled to lien over the decision until payment is made.
• Adjudicators must render decisions within fourteen (14) days after the date when the adjudicator receives the response to the reference or the date when a responding party should have submitted a response to the reference (extendable with consent). The adjudicators can use flexible procedures, including calling conferences, written submissions, and site visits. The process excludes strict application of the Evidence Act, allowing informality and speed.
• Decisions of adjudicators are binding and enforceable on an interim basis unless set aside in an arbitral or litigation process. The decision must outline the amount payable, interest, and due date and be accompanied by an adjudication certificate.
• Adjudication decisions/certificates can be adopted in the High Court and enforced as judgements for debts. The Application to set aside the decision must be filed within seven (7) days on the following limited grounds: statutory non-compliance, fraud/corruption, or excess of jurisdiction. However, the Applicant must deposit the adjudicated sum as security for costs.
• The binding nature of the decision ensures immediate enforcement (if not challenged), safeguarding project cash flow and maintaining project progress. Adjudicated amounts must be paid within seven (7) days from the date of the certificate, or as may be prescribed by the adjudicators.

The Bill seeks to promote timely payments and equitable remedies for disputes in Kenya’s construction sector by strengthening the adjudication practice with greater efficiency and accountability. It introduces statutory adjudication as a fast, cost-effective mechanism for resolving payment disputes. Statutory adjudication enables cash flow continuity in ongoing projects while preserving the parties’ rights to later pursue arbitration or litigation. If implemented effectively, the Bill has the potential to transform dispute

Conclusion

For Kenya’s construction sector to achieve timely and effective project delivery, it is essential to adopt flexible and fast-track dispute resolution mechanisms such as adjudication. As extensively discussed above, this mechanism makes it both costly and risky for the parties to stall payments, thereby curbing project delays and avoiding potential claims for liquidated damages.

If enacted, implementation of the statute will require widespread training and accreditation of adjudicators, as well as sensitisation of industry stakeholders. Contracts previously negotiated that lack adjudication clauses, may require transitioning through amendments, to facilitate the use of this mechanism. This is owing to the fact that adjudication under the Bill is not a matter of right but must be agreed upon in writing. In any event, jurisdictional issues as preliminary points when challenging an adjudication decision, may arise where the dispute is not covered by an adjudication agreement.

By contrast, in the United Kingdom, parties to a construction contract have an automatic right to adjudicate at any time, even if the contract does not expressly include the mechanism. This right to adjudicate cannot be taken away contractually.

Nevertheless, the effectiveness of the adjudication process will demand a multi-sectoral approach. Specifically, swift enforcement of the adjudication decision by the High Court will be critical, requiring a strong buy-in from the judiciary.

Therefore, the proposed Bill is a step in the right direction, as it provides a governing legal framework that secures statutory access to adjudication, while defining its procedural and substantive elements. Such legislation will strengthen the viability of adjudication as an efficient tool for safeguarding cash flow, preserving business relationships, and ensuring project completion within agreed timelines.

Introduction

The issue of migration of legacy tax balances to the iTax system has not been without its fair share of controversies, with some escalating to the Tax Appeal Tribunal for resolution. The most common denominator in these controversies has been issues relating to statutory time limits on amending self-assessment records, the appealability of legacy migration notifications, and the retrospective assessment of taxes on legacy balances.

The decision of the Tax Appeals Tribunal in TATC NO. E1217 of 2024: Sony Holdings Limited versus The Commissioner of Domestic Taxes, in which we represented the Appellant offers much-needed clarity on the statutory limits applicable to the KRA when issuing communications of migration of legacy balances that differ from taxpayer’s self-assessment records, and on whether such legacy balances may be deemed to constitute tax assessments.

 

The Appeal

In the cutting-edge decision, the Tax Appeals Tribunal made conclusive determination on issues relating to the migration of legacy balances. The case stems from the notification of migration of legacy balances to the iTax platform. This was a common plight of many taxpayers in the first quarter of 2025, where the KRA issued notifications to many taxpayers informing them the intention to migrate legacy balances to iTax upon those balances being validated. Such similar notice was sent to Sony Holdings Limited notifying it of the intended migration of the alleged legacy balances for the period up to 2014 comprising KES. 171,584,860 in income tax and KES. 170,949,668 in VAT and was requested to provide supporting documentation for validation of the alleged debit balances.

Sony Holdings Limited disputed the alleged legacy balances and furnished documentation proving that it had no debit balances eligible for migration to the iTax-system. Notwithstanding such evidence, KRA proceeded to issue an Objection Decision without validating the balances and demanded KES. 201,125,150.88, purportedly arising from self-assessment returns for the years of income 2009, 2010 and 2012. The demand was issued despite the taxpayer having provided documentation for revalidation which clearly demonstrated that no tax liabilities existed for migration.

 

Determination

In its determination, the Tribunal concluded that once a migration notice has been issued and supporting documents requested, the Kenya Revenue Authority is obligated to validate the taxpayer’s balances on the basis of the information provided. Only after undertaking this validation can the Authority issue a tax decision capable of grounding a procedurally sound Objection Decision.

Further, the Tribunal affirmed that a taxpayer cannot be denied the right of appeal on the pretext that it did not exhaust Tax amnesty mechanism. It was held that such route is optional and can only be applicable where the taxpayer has conceded to the principal debt or in case of contentions, the debt has been confirmed by a court of law.

The Tribunal also affirmed that any action of coming up with migration balances different from the self-assessment record after five years of making such self-assessments was contrary to section 27 and 31 of the Tax Procedure Act unless gross or wilful neglect, evasion or fraud was proven.

Lastly, the Tribunal determined that KRA could not demand taxes allegedly arising from the migration balances without validating the said balances based on the documents provided by taxpayer.

 

The Significance of this Judgment

For practitioners and businesses, the key takeaway is that the Kenya Revenue Authority cannot, under the guise of migrating legacy balances, alter a taxpayer’s self‑assessment records that were filed more than five years ago unless it can demonstrate fraud, tax evasion or wilful neglect on the part of the taxpayer. In the absence of such statutory justification, any amended assessment issued by KRA outside the five‑year period following submission of a self‑assessment return is rendered void, as it is expressly barred by law.

Introduction

Can a company that has been dissolved be liable for tax? The issue was recently resuscitated by the Kenya Revenue Authority (KRA) when it decided to impose tax on a company which had been dissolved, raising the question of whether a company that has been dissolved continues to exist for the purposes of tax.

The issue fell for determination before the Tax Appeals Tribunal (Tribunal), bringing into focus the extent of KRA’s powers to raise or enforce purported tax liabilities once the company is dissolved.

 

The Appeal

The firm represented a Client before the Tribunal, where the question of enforcing alleged tax liabilities against a dissolved company was conclusively determined.

The Dissolved Company was deregistered in 2018 under the provisions of the Companies Act (Cap. 486). In accordance with the requirements of the Tax Procedures Act (TPA) it was required to apply for deregistration as provided under section 10 of the TPA. It applied for its PIN to be deregistered and provided the relevant documents as requested by KRA. As is common in many instances no decision was made or communicated by KRA.

In 2024, KRA issued a notice indicating its intention to migrate the legacy balances to the Dissolved Company’s iTax ledger. The alleged balances comprised unsubstantiated ledger balances spread over a period ending more than ten years prior to the date of migration. The Appellant, a former director of the Dissolved Company, objected to the migration on the basis that, at the time of dissolution, the Dissolved Company had no outstanding tax liabilities. KRA nevertheless issued an objection decision affirming its decision to migrate the disputed liabilities, prompting the Appellant to file an appeal before the Tribunal.

KRA contended that a director had no standing to file an objection because he was not the taxpayer to whom the notice of migration had been issued.

 

Determination

In its decision, the Tribunal determined that once a company is deregistered, it ceases to exist as a legal entity and cannot be subjected to tax enforcement proceedings unless it is first restored to the register of Companies. Attempting to enforce tax liabilities against a non-existent entity without such restoration was legally untenable.

The Tribunal found that a director like the Appellant was qualified as an “aggrieved person” under section 52(1) of the TPA and sections 3 and 12 of the Tax Appeals Tribunal Act and could appeal against an appealable decision. He was a person who could be directly affected under section 897(6) of the Companies Act, notwithstanding the Company’s dissolution. Accordingly, the former director had the requisite standing to file the appeal.

The Tribunal further held that, upon the Company’s application for cancellation of its PIN and in the absence of any substantive response from KRA within six months, the PIN was deemed deregistered by operation of law pursuant to section 10(7) of the TPA.

 

The Significance of this Judgment

This Judgment underscores that once a company is legally dissolved and its KRA PIN deregistered, its “tax life” effectively ends, unless the company is restored through a court order.

Proper compliance during dissolution is essential. Companies must notify KRA of their dissolution and make an application for cancellation of their KRA PIN in accordance with section 10 of the TPA. Where this is done correctly, the company cannot be pursued for tax liability unless it is first restored to the Companies register.

For practitioners and businesses, the takeaway is that dissolution of a company is not a loophole to escape pre-existing liabilities. Rather, it serves the purpose of finality and legal certainty by shielding the company from claims or debts that did not exist at the time of dissolution. For any claim to be sustained, due process must be followed as provided for under the Companies Act.

 

Introduction

Few events can unsettle a business, such as an unexpected call from the bank confirming that its accounts have been frozen. Payroll deadlines approach, supplier commitments go unfulfilled, and carefully structured transactions come to a halt unexpectedly. In Kenya, this disruption is increasingly linked not to insolvency or internal mismanagement, but to a single enforcement tool. This is the issuance of an agency notice by the Kenya Revenue Authority (KRA) as the tax administrator.

One of the most effective instruments in Kenya’s tax enforcement tools is an agency notice, which enables KRA to collect claimed, alleged tax liabilities by attaching funds held by third parties. Despite their statutory footing, the use of agency notices frequently lies at the intersection between effective or efficient revenue collection and the protection of taxpayer rights. In this case taxpayer includes a non-resident person who is subject to tax in Kenya. Accordingly, understanding or knowing how to respond to them is not simply a matter of compliance.  Any taxpayer operating in today’s enforcement climate must consider governance, financial continuity, and legal strategy.

In this article, we examine the legal framework governing agency notices in Kenya and outline some of the strategic considerations for taxpayers confronted with their issuance.

 

Legal Underpinning of Agency Notices in Kenya

The legal architecture governing agency notices in Kenya is anchored in Section 42 of the Tax Procedures Act, Cap 469B of the Laws of Kenya (TPA). The provision empowers KRA to appoint any person holding money for, or on account of, a taxpayer as an agent for the purpose of recovering unpaid taxes. Once appointed, that agent is required to remit to KRA any monies held on behalf of the taxpayer, up to the amount specified in the notice. The agency notice is simultaneously served on the taxpayer.

Section 42(2) of the TPA enumerates persons who may be an agent and who may be required to comply with an agency notice, and this includes the following persons:

• a. who owes or may subsequently owe the taxpayer, e.g., employer or debtors;
• b. who holds or may subsequently hold money, for or on account of the taxpayer, e.g., banks, trustees or escrow agents;
• c. who holds or may subsequently hold money on account of some other person for the taxpayer, e.g., financial advisors or executors of an estate; or
• d. who has authority from some other person to pay money to the taxpayer as specified in the notice, but this amount shall not exceed the amount of the unpaid tax or the amount the Commissioner believes will be paid by the taxpayer, e.g., holder of power of attorney, accountants, or trustees of a trust.

In practice, and despite having the various agents listed above, agency notices are frequently served on banks holding taxpayers’ deposits. Our understanding is that they are easy to reach and strictly apply the requirement to withhold funds in compliance with Section 42 of TPA. Upon receipt, the bank is required to ring-fence the affected accounts and remit funds to KRA until the tax liability is paid up. An agency notice, therefore, operates as a statutory demand directed at a third party, effectively interposing KRA between the taxpayer and its funds.

Given the immediacy and commercial disruption occasioned by agency notices, a structured response strategy is essential.

 

Navigating Agency Notices in Kenya

1. Settlement of the Tax Demand

The first consideration for a taxpayer is whether the tax liability is undisputed or contested. If the taxes are not in dispute, the most direct solution is to settle the outstanding amount or negotiate a payment plan with KRA. Under Section 42(8) of the TPA, KRA is required to revoke or amend an agency notice once the tax is paid in full or satisfactory payment arrangements have been made. In practice, confirmation of payment or approval of a payment plan typically results in the lifting of the notice and the release of frozen funds, restoring access to the affected accounts, and mitigating commercial disruption.

 

2. An Agency Notice is an Appealable Decision

Where the tax liability is disputed, the taxpayer’s next recourse is to challenge the agency notice through the statutory dispute-resolution framework as elucidated under the TPA. Jurisprudence confirms that an agency notice is not procedurally insulated from challenge, rather, it is considered an appealable decision under the TPA.

In Commissioner of Domestic Taxes vs. Pevans East Africa Ltd & 6 others [2022] KEHC 10392, the Late Justice Majanja DAS (as he then was) affirmed that the issuance of an agency notice constitutes an appealable decision within the meaning of Section 3 of the TPA.

This position was further reinforced in Mubea Group Ltd vs. Kenya Revenue Authority [2025] KEHC 12003, where the High Court struck out judicial review proceedings on the ground that an agency notice is a statutory appealable decision. The Court emphasized the doctrine of exhaustion of remedies, highlighting that where Parliament has provided a clear mechanism for objection and appeal, taxpayers must pursue that route before invoking the supervisory jurisdiction of the High Court under a judicial review. Therefore, the first point of call is to file an appeal with the Tax Appeals Tribunal.

 

3. Procedural Fairness and Conditions Precedent

Closely linked to the option of appealing to the Tax Appeals Tribunal is the requirement for procedural compliance. Courts have held that agency notices must be issued in accordance with the law.

Section 42(14) of the TPA sets out the specific conditions that must be satisfied before KRA can issue an agency notice. The provision ensures that agency notices are not issued arbitrarily and provides a clear statutory framework for enforcement. Under this section, KRA is directed not to issue an agency notice unless one of the following conditions is met:

• 1. The taxpayer or non-resident subject to tax in Kenya has defaulted in paying an instalment after extension of time to make payment as agreed under Section 33(2) of the TPA.
• 2. KRA has raised an assessment, and the taxpayer has not objected to or challenged the validity of the assessment within the prescribed period.
• 3. The taxpayer has not appealed against an assessment specified in an objection decision within the prescribed timelines.
• 4. The taxpayer has submitted a self-assessment and filed a return but has failed to pay the taxes due before the payment deadline.
• 5. The taxpayer has not appealed against an assessment specified in a decision of the Tribunal or Court.

These conditions collectively ensure that KRA exercises its powers judiciously and only after statutory avenues for compliance, assessment and objection have been exhausted.

 

4. Application for Stay

Once a taxpayer has lodged a substantive appeal, a critical strategic consideration is whether to seek a stay of enforcement of the agency notice pending the outcome of the appeal. The TPA does not automatically treat the filing of an appeal as a stay of execution, making it imperative for the taxpayer to proactively seek interim relief, which, if granted, will allow a taxpayer to access funds when the appeal is pending hearing and determination.

 

5. Obligations of the Agent

The agent is obligated to notify KRA within 14 days of receiving the agency notice if they do not hold any monies on behalf of the taxpayer as provided for under Section 42(6) of the TPA. Upon receipt of this communication, Section 42(7) of the TPA requires KRA to respond within 30 days to the agent by either accepting the notification and canceling or amending the notices or rejecting the notification.

The above provisions confirm that the agent is under a statutory obligation to honour the agency notice and a notification of lack of sufficient funds does not automatically extinguish the notice. Where the notice is rejected, the taxpayer must still seek intervention of the court to have the agency notice lifted, as any funds received by the agent in the future will be attached and utilized towards settlement of the demanded taxes.

 

Conclusion

Agency notices are among KRA’s most potent enforcement tools, capable of immediately impacting a taxpayer’s liquidity and operations, and should never be ignored. Jurisprudence confirms that such notices are appealable decisions, enforceable against third parties, yet subject to both procedural safeguards and constitutional scrutiny.

For taxpayers, the key lies in a balanced strategy which includes promptly assessing the underlying decision, pursuing the statutory objection and appeal process, seeking interim relief where necessary, and engaging constructively with your legal representatives. In doing so, taxpayers can protect their interests while ensuring compliance with Kenya’s evolving tax enforcement landscape.