Case Reference: Jilk Construction Company Ltd v Commissioner of Legal and Board Services (Tax Appeal E1200 of 2025) [2026] KETAT 280 (KLR) (14 August 2026) (Judgment)
Background
Jilk Construction Company Limited is a private limited liability company incorporated in Kenya, engaged in civil and general construction encompassing road and bridge infrastructure development, commercial and residential building construction, telecommunication civil works, irrigation and dam works, power and lighting installation projects, and the manufacture and supply of premix concrete.
The Kenya Revenue Authority undertook an audit of the company’s tax affairs covering Corporation tax for the period January 2019 to December 2023, and PAYE, VAT and Withholding tax for the period June 2020 to December 2024. An audit notice was issued on 20th February 2025, followed by a pre-assessment notice.
On 4th July 2025, the KRA issued an assessment notice demanding a staggering total of Kshs. 1,382,011,664.20, comprising principal taxes of Kshs. 948,612,924.00, penalties of Kshs. 47,430,646.20 and interest of Kshs. 385,968,094.00, broken down as Corporation tax of Kshs. 737,590,491.15, VAT of Kshs. 331,332,834.45 and PAYE of Kshs. 313,088,338.60.
The Appellant lodged a manual notice of objection dated 6th August 2025, received by the Respondent on 7th August 2025. Following exchanges requesting further documentation between August and September 2025, the Respondent issued an objection decision dated 2nd October 2025 partially allowing the objection. Aggrieved, Jilk Construction filed a Notice of Appeal on 27th October 2025.
Jilk Construction’s Arguments
Jilk Construction presented a multi-faceted appeal before the Tax Appeals Tribunal, raising several key arguments:
First, on Corporation tax, the Appellant contended that the alleged variance of Kshs. 979,154,326.00 arose from duplication and misclassification errors by its customers, principally the Kenya Ports Authority and Kenya Breweries Limited, which it demonstrated through invoices, payment schedules and subsequent billing. While acknowledging that the Respondent accepted partial adjustments, Jilk faulted the KRA for failing to explain the unreconciled variance of Kshs. 87.6 million, contrary to Section 51(10)(b) of the Tax Procedures Act which requires the Commissioner to give reasons for each adjustment. The company asserted that this amount arose from an advance payment by KPA that had already been deducted from subsequent invoices.
Second, Jilk argued that several invoices were wrongly disallowed because the amounts withheld differed from those in the invoices, notwithstanding evidence that the variances arose from client data entry errors and timing differences. This included invoice JCC/INV/451/CGK-2021, which the company said was an advance payment from a client that was fully accounted for and deducted in subsequent invoices, whose inclusion occasioned double taxation contrary to Section 3(2) of the Income Tax Act.
Third, regarding subcontractor fees of Kshs. 35,477,649.00, Jilk argued that the expenses were wholly disallowed for want of proof of payment despite invoices having been furnished, and that the Respondent failed to apply Section 15(1) of the Income Tax Act which permits the deduction of expenditure wholly and exclusively incurred in the production of income. The company posited that the proper treatment for a failure to withhold would have been to levy withholding tax at 5% on the applicable payments rather than to disallow the expense in its entirety.
Fourth, on VAT, Jilk explained that it took over a contract initially awarded to Afrikon Company Ltd by the National Irrigation Board in respect of the Bura Irrigation Project by a Deed of Assignment dated 27th August 2021, and that the project was zero-rated at the time of the assignment pursuant to the VAT (Exemption) Order, 2018. The company maintained that its client erroneously withheld VAT on those supplies, creating an artificial VAT liability of Kshs. 649,677,949.00.
Fifth, concerning PAYE, Jilk indicated that it engaged casual workers for project sites in remote regions, most of whom were illiterate and undocumented, did not possess valid identification or KRA PINs, and requested one trusted team member to receive payment on their behalf as supported by muster rolls and transfer records. The company insisted that the workers earned wages below the PAYE threshold under Section 5(2) of the Income Tax (PAYE) Rules, that payment records and transfer confirmations were available for verification, that the total actual payroll in 2023 was Kshs. 92,290,878.00 and not Kshs. 354,959,857.00 as assessed, and that the PAYE audit schedule contained numerous computational errors.
Finally, Jilk argued that the Respondent failed to consider material evidence including invoices and interim payment certificates, payroll records and muster rolls for casual site workers, and contracts and the Deed of Assignment confirming zero-rated supplies, rendering the objection decision procedurally unfair and legally defective under Section 51(10) and (11) of the TPA.
KRA’s Arguments
The Kenya Revenue Authority defended its objection decision on several grounds:
First, the KRA explained that the disallowed Corporation tax of Kshs. 87,623,590.73 for the year 2019 was not allowed because the Appellant failed to provide a confirmation from KPA that the invoice was erroneously claimed by it. The Respondent emphasised that amounts which were supported by invoices, contracts and email correspondence from KPA confirming erroneous claims, amounting to Kshs. 891,402,538.37, were allowed. The KRA added that any invoices affected by alleged erroneous withholding variances that were supported by invoices, withholding certificates and clear declarations on iTax were equally allowed.
Second, regarding the advance payment under invoice JCC/INV/451/CGK-2021, the Respondent noted that whereas the Appellant claimed that the advance payment was erroneously withheld by the supplier, no evidence was furnished to demonstrate that the withholding certificate was erroneous or that the Appellant undertook any effort to correct the alleged error.
Third, on the PAYE assessment relating to direct labour, the KRA acknowledged that the Appellant attributed the variances to casual workers earning wages below the PAYE threshold and provided Excel schedules showing the breakdown of the casual workers and the amounts paid to them. However, the Respondent pointed out that the Appellant failed to provide evidence of payment to the casual workers as requested in the KRA’s email of 27th August 2025, and that sign-out schedules were provided only for week 9 of 2020.
Fourth, the KRA averred that the documents requested but not provided would have enabled it to ascertain whether the wages were incurred and to reconcile the variance established. The Respondent added that all evidence tendered was considered and that whatever was supported was allowed, including the correction of computational errors in the manual assessment which reduced the PAYE principal tax from Kshs. 235,117,595.00 to Kshs. 228,569,459.39.
Fifth, the KRA emphasised that the Appellant was requested to provide various documents to demonstrate that the assessment as issued was erroneous or excessive, but the records were not availed. Accordingly, the Respondent found that Jilk did not validate its objection as required by Section 51(3) of the TPA and thus failed to discharge its burden of proof under Section 56(1) of the TPA.
The KRA relied on the decision in National Social Security Fund Board of Trustees v Commissioner of Domestic Taxes [2016] eKLR, where the High Court affirmed that “there is a world of difference between assertion and proof,” and on Commissioner of Domestic Taxes v Trical and Hard Limited [2022] KEHC 9927 (KLR), where it was held that the evidential burden of proof rests with the taxpayer to disprove the Commissioner, and that only evidence that meets the tests of competence and relevance demolishes the presumption of correctness and swings the burden to the Commissioner.
TAT Observations
.On Jurisdiction
The Tribunal held that it is a creature of statute under Section 3 of the Tax Appeals Tribunal Act, 2013, with jurisdiction under Section 12 confined to tax decisions. Questions of alleged violation of Article 47 of the Constitution and the Fair Administrative Action Act, 2015 fall to the High Court under Articles 23, 47(3) and 165(3)(b) and (d) of the Constitution. The Tribunal declined to make findings on those constitutional issues but proceeded to determine the underlying merits question of whether the assessments were excessive or erroneous.
On the Adequacy of Reasons
The Tribunal found that the objection decision addressed each ground in turn, tabulated allowances made for KBL, KPA and Export Processing Zone invoices, derived the unreconciled variance arithmetically, and explained the basis for sustaining the subcontractor fees, VAT and PAYE disallowances. The Tribunal held that the complaint under Section 51(10)(b) was without foundation and the objection decision was not defective.
On Corporation Tax
The Tribunal found that the variance of Kshs. 979,154,326.00 arose from a comparison of the sales declared by the Appellant against the purchases claimed from it by its customers. The record demonstrated that where the Appellant supported its explanations, the Respondent allowed them: duplicated claims by KBL of Kshs. 50,178,081.25 confirmed by that customer, duplicated and overclaimed KPA invoices of Kshs. 841,224,457.12 confirmed through invoices, contracts and email correspondence from KPA, and an overclaimed Export Processing Zone invoice of Kshs. 128,296.90, together accounting for over 91% of the original variance, were all vacated at the objection stage. What remained was the unreconciled balance of Kshs. 87,623,490.73, in respect of which the Respondent required, and the Appellant did not furnish, a confirmation from KPA that the underlying invoices had been erroneously claimed. The Tribunal found that the Appellant failed to discharge its burden in respect of this item.
On Withholding Variance Invoices
The Tribunal noted that the demonstrated timing differences were adjusted and allowed in the objection decision, in the sums of Kshs. 121,128,641.09, Kshs. 431,268,190.37 and Kshs. 34,942,786.85 for the years 2020, 2021 and 2023 respectively, and it was only the unreconciled balances that were brought to charge. With respect to the retention-related variances, the Respondent’s finding was that although the Appellant provided the invoices relating to the retentions, the final payment certificates were not provided, and in the absence of a general ledger it could not be established whether the retentions were paid and accounted for. With respect to invoice JCC/INV/451/CGK-2021, the Appellant’s contention that the advance payment was erroneously withheld was unaccompanied by any evidence that the withholding certificate was erroneous or that the Appellant took any step to have it corrected or cancelled.
On Subcontractor Fees
The Tribunal observed that the original basis of this disallowance, being the Appellant’s failure to deduct withholding tax on the subcontractor fees, is not, without more, a basis known to the Income Tax Act for disallowing an expense. The remedy for a failure to withhold tax lies in the recovery of the unremitted withholding tax together with the attendant penalties and interest from the payer, and not in the disallowance of an otherwise deductible expense. However, at the objection stage, the Respondent interrogated the deductibility of the expense itself under Section 15 of the ITA and requested the invoices, proof of payment and the expense ledger. The Appellant provided the invoices only; the general ledger and proof of payment were never submitted, whether to the Respondent or to the Tribunal. The Tribunal found that invoices alone evidence a demand for payment; they do not evidence payment or incurrence. In the absence of proof of payment and ledger entries, the deduction was not substantiated.
On VAT Variance
The Tribunal found that the Appellant’s explanation for the VAT variance was that the WHVAT certificates issued by the National Irrigation Authority related to a zero-rated project which it took over from Afrikon Company Ltd by a Deed of Assignment, such that the withholding of VAT on those supplies was erroneous. However, the Appellant did not submit the supporting invoices or demonstrate a linkage between the invoiced transactions and the WHVAT certificates. It provided no evidence of the VAT (Exemption) Order, 2018 gazette entry applicable to the Bura Irrigation Project, nor of any action taken to correct the alleged error. Most tellingly, the Tribunal noted that the Appellant claimed and benefited from the WHVAT credits issued by the National Irrigation Authority, conduct that is irreconcilable with its assertion that the withholdings were erroneous.
On PAYE Assessment
The Tribunal found that the Appellant’s explanation, that the variances comprised wages paid to casual workers earning below the PAYE threshold, was one that is capable of verification, and the Respondent identified with precision the documents required to verify it: month-by-month payroll breakdowns, summaries of the casual workers including their identification and telephone particulars, sign-out schedules, and evidence of payment through bank statements or the cashbook. The Appellant provided Excel schedules showing the breakdown of the casual workers and the amounts paid, but the evidence of actual payment was never furnished, and sign-out schedules were availed for only one week, being week 9 of 2020, out of a four-year audit period. The Tribunal found that a schedule prepared by a taxpayer is, without the underlying payment evidence, no more than a reformulated assertion; it is not the competent and relevant evidence which shifts the burden to the Commissioner.
Final Orders
After thorough analysis, the Tribunal delivered the following orders on 14th August 2026:
- The Appeal was dismissed in its entirety.
- The Respondent’s objection decision dated 2nd October 2025 was upheld.
- Each party was ordered to bear its own costs.
The Tribunal effectively confirmed that Jilk Construction remained liable for the tax assessments as confirmed in the objection decision, with the company having failed to discharge its burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act.
Practical Lessons
This landmark judgment offers several valuable lessons for taxpayers and tax practitioners:
Documentation is everything. Jilk’s downfall was not that its arguments lacked merit, but that it failed to produce the specific documents requested by the KRA. The Tribunal emphasised that there is a world of difference between assertion and proof. Taxpayers must ensure they can produce invoices, proof of payment, general ledgers, bank statements, and all relevant correspondence to support their objections.
Invoices alone are not enough. The Tribunal made it clear that invoices evidence a demand for payment, not that payment was actually made. Taxpayers claiming deductions must provide proof of payment, ledger entries, and bank statements to substantiate their expenses.
.PAYE compliance requires more than schedules. Excel schedules and muster rolls are not sufficient to prove wages were paid to casual workers. Taxpayers must maintain and produce bank statements, mobile money transfer records, or cashbook entries evidencing actual payment.
The burden of proof is real and unforgiving. Section 56(1) of the TPA places the burden on the taxpayer to prove that a tax decision is incorrect. This burden is not discharged by forceful arguments or compelling narratives; it requires competent and relevant evidence. The Tribunal quoted the NSSF case with approval: “There is a world of difference between assertion and proof.”
Conclusion
The Jilk Construction case is a sobering reminder that in tax disputes, good stories are not enough. Jilk had compelling explanations for every variance—client data entry errors, timing differences, zero-rated supplies, undocumented casual workers—but when it came time to prove those explanations with hard evidence, the company came up short.
The Tribunal’s judgment affirms that the KRA’s assessments are presumptively correct, and that presumption endures until the taxpayer produces competent and relevant evidence to demolish it. The KRA is not required to accept explanations at face value; it is entitled to demand the underlying documentation. And when that documentation is not forthcoming, the Tribunal will uphold the assessment.
For businesses operating in Kenya, this case underscores the critical importance of maintaining comprehensive, accessible, and organised tax records. In the high-stakes world of tax disputes, the difference between victory and defeat often comes down to a single document—a proof of payment, a ledger entry, a confirmation letter. Jilk Construction learned this lesson the hard way, and the cost was over a billion shillings.
