Taxpayers Get Relief as Tribunal Rules on KRA VAT Credit Set-Offs

Taxpayers holding tax balances alongside available Value Added Tax (VAT) credits have gained major relief following a ruling by the Tax Appeals Tribunal requiring the Kenya Revenue Authority (KRA) to offset outstanding liabilities against available credits before pursuing enforcement measures.

The dispute arose between Easton Petroleum Limited and the KRA after the company sought to clear an outstanding VAT liability of Ksh12.86 million using its available VAT credit of Ksh19.71 million.

The firm formally requested the offset under Section 47 of the Tax Procedures Act. However, the revenue authority declined the application and initiated enforcement action, issuing agency notices to freeze the company’s bank accounts.

The KRA maintained that the Ksh19.71 million represented excess input VAT governed by Section 17(5) of the VAT Act, which mandates that excess input tax be carried forward to subsequent tax periods rather than offset directly against liabilities.

Easton Petroleum challenged the decision before the Tribunal, arguing that its available tax credits exceeded the outstanding liability and that the KRA was obligated to evaluate the set-off application before taking collection measures.

In its decision delivered on July 27, 2026, the Tribunal rejected the taxman’s position. The panel affirmed that Section 47 of the Tax Procedures Act grants the Commissioner statutory authority to apply an available tax credit toward an existing tax liability where circumstances justify the set-off.

“The Tribunal therefore finds no reason for the Respondent to resort to enforcement mechanism while it had within its reach available VAT credit, nor did it substantiate why denying the Applicant a Tax Compliance Certificate was justified,” the Tribunal ruled.

The panel determined that Section 17(5) of the VAT Act does not bar the tax authority from considering a formal set-off application made under Section 47 of the Tax Procedures Act.

Consequently, the Tribunal directed the KRA to execute the set-off, issue Easton Petroleum with a Tax Compliance Certificate (TCC), and unconditionally lift all agency notices issued to its banking partners.

The ruling sets a significant administrative precedent, establishing that the KRA must properly evaluate valid set-off requests from taxpayers holding undisputed tax credits before freezing accounts or initiating debt collection enforcement.

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