Case Study: Hashi Energy Limited (In Liquidation) v Commissioner of Domestic Taxes (Income Tax Appeal E290 of 2024) [2026] KEHC 3014 (KLR) (Commercial and Tax) (19 February 2026) (Judgment)
The Dispute
HEL, a Kenyan-registered company previously engaged in supplying food and fuel to UN Peacekeeping Missions in the Democratic Republic of Congo (DRC), was audited by the Kenya Revenue Authority (KRA) for the period 2017 to 2022. The audit covered various tax heads, including corporate income from its UN contracts, Pay As You Earn (PAYE), Value Added Tax (VAT), and Withholding Income Tax (WHT).
Following the audit, KRA issued a demand for KES 7,029,209,729.00, a figure that was later upheld by the Tax Appeals Tribunal (TAT). Aggrieved, HEL appealed to the High Court, arguing primarily that income from its DRC operations was not taxable in Kenya, as the contracts were managed and executed offshore.
Key Legal Findings
Justice Moses systematically dismissed all seven grounds of appeal, reinforcing several fundamental principles of Kenyan tax law.
1. Source of Income: Control from Kenya is Key
HEL contended that its income from the UN Ration Food and Fuel Supply contracts was earned in the DRC and should not be subject to Kenyan tax, invoking the “source rule.” The Court rejected this argument, relying on Section 4(a) of the Income Tax Act (ITA) . This provision states that for a resident person, the whole of the gains or profits from a business carried on partly within and partly outside Kenya is deemed to have accrued in Kenya. The Court found that HEL, as a Kenyan-domiciled company, managed the contracts, consolidated payroll, and exercised ultimate control from Kenya. This created a sufficient “taxable presence” or nexus, making the income chargeable. The argument of potential double taxation was dismissed as the DRC has no Double Taxation Agreement with Kenya.
2. Burden of Proof: Liquidation is Not an Excuse
HEL argued that its liquidation status hindered its ability to provide full documentation to support its deductions for interest, bank charges, and to reconcile its VAT returns. The Court firmly rejected this, citing Section 56(1) of the Tax Procedures Act (TPA) , which places the burden on the taxpayer to prove an assessment is incorrect. While acknowledging the practical difficulties of liquidation, the court held that this does not relieve a taxpayer of its statutory obligation to keep, produce, and maintain records. “The Appellant’s liquidation, though an unfortunate circumstance, does not shift the statutory burden,” Justice Moses ruled. HEL’s failure to provide material records, reconciliations, and contracts left the Tribunal with little to test the accuracy of its assertions.
3. PAYE: Resident Employer Triggers Obligation
On the question of PAYE for DRC-based staff, HEL argued that tax was not payable as services were rendered outside Kenya. The Court applied Section 5(1)(b) of the ITA , which deems income paid by a resident employer to any employee to have accrued in Kenya. Since HEL was a Kenyan resident entity and processed the payroll, it was liable for PAYE regardless of where the employees performed their duties.
4. Financing Costs and Withholding Tax
The Court upheld KRA’s disallowance of over KES 3.4 billion in interest, “profit share,” and bank charges, as HEL failed to prove they were “wholly and exclusively” incurred in the production of income as required by Section 15(1) of the ITA. Regarding withholding tax on payments to non-resident lenders, HEL argued that its “profit share” payments under Shariah-compliant financing were not “interest.” The Court clarified that the ITA defines “interest” expansively to include any return paid in respect of a loan or credit, regardless of the terminology used. HEL failed to provide financing agreements to rebut this characterization.
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