Case Reference:Wamuri Ltd v Commissioner of Domestic Taxes (Tax Appeal E588 of 2025) [2026] KETAT 163 (KLR) (13 July 2026) (Judgment)
Background of the Dispute
Wamuri Limited is a private company operating a residential rental property business in Nairobi. Following an audit covering the period 2019 to 2023, the Kenya Revenue Authority assessed the company for additional taxes totaling Kshs. 69,750,460, inclusive of interest and penalties. The assessment was broken down as follows: PAYE of Kshs. 55,432,786, VAT of Kshs. 12,877,020, and Corporation Tax of Kshs. 1,356,300.
The largest component of the assessment arose from a fundamental question that affects thousands of business owners across Kenya: When directors withdraw money from a company for personal use, should that be treated as income subject to PAYE?
The tax authority essentially alleged that the directors’ drawings of Kshs. 136,577,811 from the company bank account were personal emoluments that should be subjected to PAYE, rather than legitimate business transactions properly documented and accounted for.
The Objection Process
On 27th March 2025, Wamuri Limited formally objected to the tax assessment, asserting that the management fees claimed for 2019 were legitimate business expenses, that VAT payments had been made on a monthly basis and should be credited, and that the directors’ drawings were not emoluments but rather represented treasury bond investments and taxes paid by a director on behalf of the company.
The company provided copies of a rent collection agency agreement, withholding tax certificates, financial statements extracts, a detailed reconciliation, the director’s personal bank statement, payment slips, a director’s resolution, and statements from the Central Bank showing treasury bonds.
However, the Commissioner was not satisfied with this documentation. The tax authority maintained that the management fees were unsupported, the VAT should have been declared upon receipt of advance rent, and the directors’ drawings lacked corresponding double entries in the financial statements and proper documentation to prove they were for business purposes.
The company failed to provide invoices, receipts, or proper accounting entries linking the remaining drawings to specific business expenses, nor did it offer any explanation for its inability to do so. Consequently, on 21st May 2025, the Commissioner issued an objection decision confirming the assessment.
Proceedings Before the Tax Appeals Tribunal
Wamuri Limited appealed to the Tax Appeals Tribunal, which reviewed the documentation and ruled partially in its favour. The Tribunal vacated the assessment in part, ordering that credit be given for VAT payments already made for 2023 and for taxes of Kshs. 12,688,624 paid by the director on behalf of the company.
However, the Tribunal upheld the Corporation Tax assessment for 2019 and the bulk of the PAYE assessment, finding that the remaining drawings were unsupported and unstructured. The Tribunal also upheld the Withholding Tax assessment as it was unchallenged by the company.
This decision represented a mixed outcome for the taxpayer, with significant victories on the VAT and part of the PAYE issues, but confirmation of the Corporation Tax and the majority of the PAYE liability.
The Tribunal’s Key Findings
On Director Drawings and PAYE
The Tribunal made a crucial distinction between two categories of drawings:
Category One: Taxes Paid by Director on Behalf of Company (Kshs. 12,688,624)
The company produced payment slips and the director’s bank statement. The Tribunal was satisfied that the director had indeed paid taxes on behalf of the company and ordered this amount to be deducted from the drawings before calculating PAYE.
Category Two: The Remaining Drawings
For the remaining withdrawals, the company could not provide invoices, receipts, proper accounting entries, or clear documentation linking the withdrawals to business expenses. The Tribunal found that the drawings remained unsupported and unstructured, and the company did not dispute that the directors had made the withdrawals.
The Tribunal applied Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, concluding that the taxpayer bears the burden of proving that an assessment is excessive or incorrect.
The Tribunal held that the Commissioner was justified in treating the remaining drawings as emoluments chargeable to PAYE.
On Corporation Tax (Management Fees)
The company claimed management fees of Kshs. 2,740,000 as a business expense for 2019. The Tribunal upheld the Commissioner’s disallowance because the company relied on audited accounts and withholding certificates but did not provide primary documents like invoices and receipts.
The Tribunal cited the High Court decision in Leah Njeri Njiru v Commissioner of Investigations and Enforcement, Kenya Revenue Authority & another [2021] KEHC 8118 (KLR) , which held that expenses can only be allowed if supported to the Commissioner’s satisfaction.
On VAT (Advance Rent)
The company received rent in advance from Vivo Energy and spread the VAT over three years. The Tribunal upheld the VAT liability but directed the Commissioner to credit payments already made for 2023.
Key Takeaways for Business Owners
1. Director Drawings and PAYE
Drawings from the company for personal use are properly treated as emoluments subject to PAYE unless the taxpayer can prove otherwise with adequate documentation. The fact that the drawings were not claimed as expenses in the financial statements did not prevent them from being treated as emoluments. This effectively means that a taxpayer cannot avoid PAYE simply by not claiming the expense.
2. Documentation Is Not Enough – You Must Prove Actual Business Purpose
The Tribunal’s decision reinforces that documentation under the tax laws, while necessary, is not sufficient to prove that director drawings were for business purposes. The drawings must relate to actual business transactions. The purchase or expense must be real, not notional, artificial, or fictitious. The company failed to prove that the remaining drawings were for actual business expenses.
3. The Burden of Proof Is on the Taxpayer
The Tribunal applied Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, concluding that the taxpayer bears the burden of proving that an assessment is excessive or incorrect. The company failed to discharge this burden by not providing invoices, receipts, or proper accounting entries.
4. Structured Transactions Matter
The Tribunal found that the drawings were “unsupported and unstructured.” This means money was moving from the company to directors without proper records. Such transactions will always attract the taxman’s attention and may be treated as taxable income.
5. Keep Adequate Primary Records
Section 54A(1) of the Income Tax Act requires taxpayers to keep records adequate for computing tax. Audited financial statements alone are not enough. You need primary documents like invoices, receipts, contracts, and payment schedules.
