PAYE on Committee Sitting Allowances

Case Study: Uriri Constituency Development Fund v Commissioner Legal Services & Board Co-ordination (Tax Appeal E262 of 2024) [2025] KETAT 108 (KLR) (7 February 2025) (Judgment)

KRA, issued UCDF with a notice of assessment dated 30th March 2021, detailing PAYE, Withholding VAT (WHVAT) and Withholding Income Tax (WHIT) assessments amounting to Kshs 51,399,432.00 for the period July 2013 to June 2019.

UCDF objected to the additional assessments on 3rd July 2023, while providing reasons for the late objection that were accepted by KRA. KRA thereafter issued an objection decision on 4th September 2023 confirming PAYE, WHVAT and WHIT assessments amounting to Ksh 51,399,432.00

In this article, we will dwell on PAYE.

Being dissatisfied with KRA’s findings and its objection decision, UCDF lodged its appeal at the Tax Appeal tribunal. Among the grounds of appeal were:

• That UCDF was registered for PAYE in May 2018 and before May 2018 it was the responsibility of the sub-county treasury to deduct and remit PAYE however, the assessment dates back to 2013.
• That not all approved allocation for committee expense was paid as committee sitting allowance since the National Government Constituency Development Act, CAP 414A of the Laws of Kenya Section 16(c) does not allow payment of more than 24 sittings per financial year. This totals to Ksh 1,248,000.00 payable each year as a sitting allowance.
• That KRA disregarded the supporting documents availed in arriving at the objection decision.
• That the assessment is outside the 5-year statutory timeline pursuant to the provisions of Section 31(4) of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”).

UCDF argued that:

• KRA infringed its legitimate expectation of a fair administrative action when the assessment was carried out past the 5 years. It submitted that, procedural legitimate expectation rests on the presumption that a public authority will follow a certain procedure in advance of a decision being taken.
• The services offered by the committee are consultative in nature and should therefore be regarded as a contract for service, rather than a contract of service, since the decisions and guidance provided by the committee are independent of UCDF.
• A committee member is entitled to Kshs. 5,000.00 for each session attended and that the committee holds a maximum of 2 sessions each month, and members receive a sitting allowance for each session they attend. In any given month, each member of UCDF’s committee receives a total of Ksh 10,000.00 in sitting allowances
• Payments made to UCDF’s committee members do not meet the threshold required, of Ksh. 24,000.00 per month for them to be subjected to the withholding income tax

KRA Responded That:

• It was the responsibility of the sub-county treasury to deduct and remit PAYE, KRA stated that UCDF did not provide any documentation to show that it registered for PAYE on or before May 2018, neither did it provide documentation to show that the sub-county treasury deducted and accounted for PAYE on their behalf.
• Section 56(1) of the TPA places the burden of proof on UCDF, whereby UCDF is required to prove its position beyond reasonable doubt. KRA averred that the assessments issued on PAYE were based the information available to KRA. It relied on Section 23 of the TPA to argue that UCDF has to keep record necessary to determine tax liability.
• UCDF did not provide any supporting documents to show that not all the approved allocation for committee sitting allowance was not paid out.

In its Judgment on 07/02/2025, the TAT observed that:

• The default tax assessments in respect to the 2013 to 2015 period were unlawful and statutorily time barred.
• UCDF adduced PIN Certificate, the objection decision, a tax objection notice and tax arrears notification dated 30th March 2021 as documentary evidence. The Tribunal was of the view that UCDF’s documentary evidence was insufficient. UCDF ought to have adduced evidence to support its assertions regarding the meetings that were held; The PAYE deductions were made by the sub-county treasury; disbursement forms or other documents proving that not all the committee sitting allowance was paid out. Pursuant to Section 56(1) of the TPA and Section 30 of the TATA, UCDF had the obligation of proving that KRA’s decision is incorrect. UCDF failed to discharge its burden since it adduced insufficient evidence.
• That UCDF was unsuccessful in discharging its burden of proving that KRA erred in confirming the 2016 to 2019 tax assessments.

As such the appeal partially succeeded; 2013-2015 assessments were time barred and therefore illegal, 2016-2019 assessments were valid.

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