In a decision delivered on 10 July 2026, the Tax Appeals Tribunal confirmed that taxpayers with approved and ascertained overpaid taxes may use Overpayment Adjustment Vouchers (OAVs) to offset outstanding tax debts and future tax liabilities across tax heads, including Pay-As-You-Earn (PAYE).
The Tribunal held that section 47 of the Tax Procedures Act, 2015 does not restrict offsets to specific tax heads and that an administrative circular issued by the National Treasury cannot override express statutory provisions.
This ruling is particularly relevant for taxpayers with approved tax credits, including excess withholding tax credits, that may not be immediately usable against corporation tax due to accumulated tax losses or other tax attributes.
Key takeaway: where an overpayment has been approved and ascertained, taxpayers may apply OAVs broadly against outstanding and future tax liabilities under section 47, and administrative system restrictions should not curtail that statutory right.
Background
Howard Humphreys (East Africa) Limited, an engineering consultancy and management services company, accumulated withholding tax credits amounting to KES 42.2 million.
Due to substantial accumulated tax losses, the company could not utilise the withholding tax credits against corporation tax, resulting in an overpaid tax position.
Following a refund audit and a consent settlement in an earlier dispute, the Kenya Revenue Authority confirmed the amount as refundable. However, instead of issuing a cash refund, KRA directed that the approved overpayment be utilised through offsets and issued OAVs equivalent to the approved tax credits.
Between July 2024 and June 2025, the taxpayer successfully used the OAVs to settle PAYE and VAT liabilities through the iTax platform.
On 19 June 2025, the National Treasury issued a circular directing that approved refunds should not be offset against PAYE, withholding taxes, or taxes and levies on imported goods, describing these as agency taxes. The circular stated that approved refunds should only be offset against the taxpayer's own tax liabilities, such as corporation tax, VAT on supplies, and excise duty on supplies.
Following the circular, KRA disabled the iTax functionality that allowed OAVs to be applied against PAYE. When the taxpayer attempted to offset PAYE liabilities for July and August 2025, the system did not permit the offset, resulting in interest accruing on the outstanding PAYE liabilities.
After KRA failed to respond to the taxpayer's request to reactivate the offset functionality, the taxpayer appealed to the Tax Appeals Tribunal.
The Tribunal's determination
The Tribunal adopted a plain reading of section 47(1)(a) of the Tax Procedures Act, 2015, which allows a taxpayer that has overpaid tax to apply to the Commissioner to offset the overpayment against the taxpayer's outstanding tax debts and future tax liabilities, including instalment taxes and VAT payable on imports.
The Tribunal held that the phrase outstanding tax debts and future tax liabilities is not restricted to any particular tax head. It further observed that the use of the word including in the statute means that the listed tax liabilities are illustrative rather than exhaustive.
In addressing the character of PAYE, the Tribunal distinguished between the charge to tax on an employee's income and the employer's statutory obligation to deduct, account for, and remit PAYE.
Although PAYE is charged on employment income, employers bear the statutory obligation to deduct and remit the tax to KRA and are exposed to penalties and interest where PAYE is not remitted within the prescribed timelines.
On that basis, the Tribunal held that PAYE obligations constitute part of an employer's outstanding tax debts and future tax liabilities for purposes of section 47 of the Tax Procedures Act.
The Tribunal rejected KRA's reliance on the National Treasury circular, holding that an administrative circular cannot amend, restrict, or override an express statutory provision. Any limitation on the utilisation of approved tax credits would require legislative amendment.
The Tribunal also rejected KRA's unjust enrichment argument. It found that the taxpayer was not seeking a refund of PAYE deducted from employees. Rather, the taxpayer was utilising its own approved income tax credit, arising from withholding tax on consultancy fees, to settle its own statutory remittance obligation.
Accordingly, the Tribunal allowed the appeal and held that the taxpayer was entitled to use its OAVs to offset PAYE liabilities and other outstanding or future tax liabilities under section 47(1)(a) of the Tax Procedures Act. The Tribunal further held that interest arising solely from KRA's disabling of the offset functionality should be vacated.
Implications of the judgment
This decision is a major development for taxpayers with approved tax credits and unresolved overpayment positions.
The ruling confirms that approved overpaid taxes may be applied broadly against outstanding and future tax obligations, including PAYE, VAT, corporation tax, excise duty, and other tax debts and future tax liabilities contemplated under section 47 of the Tax Procedures Act.
The judgment reinforces the principle that administrative guidance, circulars, or system restrictions cannot override clear statutory rights. Where the law grants a taxpayer a right to offset approved overpaid taxes, any administrative limitation must have a clear legal foundation.
The ruling is especially relevant to taxpayers with substantial withholding tax credits and limited ability to utilise those credits against corporation tax. Such taxpayers may have a stronger legal basis to seek offsets against PAYE, VAT, and other tax liabilities, subject to the statutory framework and the practical functionality of the iTax system.
The decision also highlights the importance of maintaining proper documentation, including refund confirmations, OAV approvals, correspondence with KRA, and system-generated evidence of attempted offsets.
OGP Advisory perspective
The Tribunal's decision provides important clarity on the interpretation of section 47 of the Tax Procedures Act. It confirms that once an overpayment has been ascertained and approved, the taxpayer's statutory right to apply the overpayment against outstanding and future tax liabilities should not be restricted through administrative action.
For businesses, the ruling has direct implications for cash flow management, tax refund strategy, PAYE and VAT compliance planning, tax credit utilisation, KRA engagement and correspondence, interest and penalty exposure, and tax dispute readiness.
The ruling is also a reminder that tax positions should be supported by clear documentation, statutory analysis, and a structured engagement strategy when dealing with KRA.
How OGP Advisory can help
OGP Advisory Services Limited supports businesses in managing tax controversy, resolving disputes, and engaging effectively with the Kenya Revenue Authority.
Support includes tax refund and overpayment claims, OAV utilisation and tax offset strategy, KRA correspondence and engagement, tax objection preparation and filing, Tax Appeals Tribunal support, interest and penalty review, tax compliance risk assessments, and dispute support across PAYE, VAT, corporation tax and withholding tax.
Contact OGP Advisory for support on approved tax credits, refund disputes, OAV utilisation, offset restrictions, or KRA tax assessments.