High Court clarifies legal recourse for income tax exemption rejections

Tax exemptions are provisions in tax laws that relieve certain individuals, organisations or transactions from paying specific taxes. They are often granted to promote social and economic objectives, such as encouraging investment, supporting charitable activities, or providing relief to specific groups like persons with disabilities.

27 Mar 2025 5 min read Tax and Exchange Control Alert Article

At a glance

  • The High Court has issued a judgment that clarifies the legal avenue for certain types of businesses to challenge tax exemption rejections through the Tax Appeals Tribunal (TAT).
  • In Saleh Mohammed Trust v Commissioner of Domestic Taxes (Income Tax Appeal E221 of 2023) [2025] KEHC 17214 (KLR) (Commercial and Tax) (14 February 2025), the High Court held that the Kenya Revenue Authority’s (KRA) decision to deny a tax exemption application was appealable.
  • Businesses and other taxpayers now have clear legal recourse to challenge such decisions directly at the TAT. This means they do not need to first lodge a notice of objection with the KRA, and wait for an objection decision, before appealing to the TAT.

However, while tax exemptions can stimulate economic growth, attract investment and promote social welfare, they could impact the Government’s ability to fund its budget. This delicate balance necessitates continuous oversight from the KRA, which regularly reviews tax exemptions to ensure compliance with tax laws and prevent the tax base being eroded. Additionally, as part of the expenditure reforms highlighted in the fiscal policy for the FY 2024/25 and medium-term budget the government seeks to protect the tax base through the elimination of unproductive tax incentives.

In recent times, the KRA has taken a firmer stance, particularly with non-governmental organisation applications for exemption certificates, often requesting additional documentation to substantiate their claims; a process that can be time-consuming. As a result, taxpayers find themselves frustrated, especially when decisions regarding exemption applications are issued after the expiration of previously granted exemption certificates.

So, what is the recourse if your tax exemption application has been rejected by the KRA?

Recently the High Court issued a judgment that clarifies the legal avenue for such businesses to challenge tax exemption rejections through the Tax Appeals Tribunal (TAT). The High Court, in the case of Saleh Mohammed Trust v Commissioner of Domestic Taxes (Income Tax Appeal E221 of 2023) [2025] KEHC 17214 (KLR) (Commercial and Tax) (14 February 2025), held that the KRA’s decision to deny a tax exemption application was appealable, classifying it under “any other decision made under a tax law other than (a) a tax decision; or (b) a decision made in the course of making a tax decision.”

Background

The dispute in this case arose from the rejection of an application for the renewal of a tax exemption certificate issued to Saleh Mohammed Trust (the Taxpayer) by the KRA of Domestic Taxes (the respondent). The original exemption certificate had been granted on 27 January 2014 and was set to expire on 27 January 2019. The taxpayer applied for renewal on 18 September 2018, but the KRA rejected the application.

Dissatisfied with this rejection, the taxpayer filed an appeal at the TAT. The KRA raised a preliminary objection, arguing that the rejection of a tax exemption renewal was not an appealable decision under the Tax Procedures Act (TPA), and that the taxpayer should have sought judicial review instead. The TAT agreed with the KRA and dismissed the appeal.

Aggrieved by this decision, the taxpayer appealed to the High Court, arguing that the TAT erred in law and fact by failing to recognise the rejection decision as an appealable decision within the meaning of section 3(1) of the TPA.

Key arguments put forward by the taxpayer

The taxpayer argued that section 3 of the TPA defines an appealable decision to include “any other decision made under a tax law,” and therefore, the rejection of its exemption certificate renewal was subject to appeal at the TAT. It contended that the TAT wrongly classified the rejection as a tax decision instead of recognising it as an appealable decision. The taxpayer argued that the rejection did not involve a tax assessment or penalties, making it distinct from tax decisions explicitly listed under the law.

The taxpayer further maintained that the TAT has jurisdiction over all decisions made under tax laws, including those related to exemptions. By dismissing the appeal for lack of jurisdiction, the TAT failed to exercise its mandate to hear the case on its merits.

Further, the taxpayer argued that the doctrine of exhaustion required the TAT to be the first avenue for resolving such disputes before any judicial review. If the TAT declined jurisdiction, the taxpayer would be denied a proper legal remedy, leading to unnecessary litigation.

The respondent’s arguments

The KRA argued that the rejection of the exemption request was not an appealable decision under the TPA, as the impugned decision was not an objection decision since no tax assessment had been issued and no notice of objection had been lodged. It maintained that the appropriate forum for challenging the rejection of the application was judicial review, not the TAT, since the decision involved the exercise of administrative discretion. The KRA further contended that “any other decision under a tax law” should be narrowly interpreted, applying only to decisions like objection determinations, which the rejection was not.

The High Court’s analysis and determination

The court held that the rejection of the exemption renewal was indeed an appealable decision. It agreed with the taxpayer that the phrase “any other decision made under a tax law” must be given a plain ordinary interpretation.

The court found that the TAT wrongly struck off the case for lack of jurisdiction. It held that the TAT had the mandate to determine the matter on its merits and should not have dismissed it. The court further held that the TAT, not a judicial review, was the appropriate forum for the dispute. The court therefore set aside the TAT’s decision, and the case was remitted back to the TAT for a full hearing on the merits.

What does this mean for taxpayers?

A tax exemption application rejection is no longer the final verdict. Businesses and other taxpayers now have a clear legal recourse to challenge such decisions directly at the TAT. This means they do not need to first lodge a notice of objection with the KRA and wait for an objection decision, before appealing to the TAT. Ultimately, with this judgment, businesses must take a proactive approach to appeal such decisions within the statutory timelines (30 days).

With the matter being referred to the TAT, it will be interesting to see if the tribunal addresses the critical question of whether the taxpayer will be deemed to have enjoyed a tax exemption in the period between the making of the renewal application (18 September 2018) and the determination of the tax dispute.

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