A few things in life are certain, and tax is one of them. Yet, even in taxation, the degree of certainty can vary and that is precisely why Kenya’s tax system allows taxpayers to seek the Kenya Revenue Authority’s (KRA) view before taking a position.
Through private rulings, businesses can obtain clarity on how a proposed transaction will be treated for tax purposes, giving them the confidence to plan and invest without fear of future surprises.
Under Section 65 of the Tax Procedures Act, a private ruling is binding on KRA, provided the taxpayer makes full and accurate disclosure and carries out the transaction as described.
The principle of legitimate expectation reinforces this: once the tax authority gives its interpretation, it should not depart from it to the detriment of a compliant payer.
In practice, private rulings are among the most important tools in modern tax planning. They provide the foundation on which businesses structure transactions and financing arrangements. But recent High Court decisions have begun to chip away at this foundation, raising questions about whether taxpayers can still rely on these rulings with the same confidence.
Private rulings serve two main purposes. First, they reduce uncertainty by clarifying how a specific law will apply before a transaction occurs.
Second, they foster compliance by encouraging taxpayers to engage openly with KRA rather than take aggressive positions based on self-interpretation.
But their protection is not absolute. A ruling can be vacated or disregarded where; the taxpayer withheld or misrepresented material facts when applying for it, the underlying law changes after the ruling is issued, KRA makes a public ruling that contradicts the private ruling or the transaction deviates materially from what was described in the ruling application.
Outside these conditions, taxpayers have traditionally believed they could rely on such rulings. Two interesting High Court decisions, however, show that this belief may not hold.
In Ruaraka Diversified Investments Ltd v Commissioner of Domestic Taxes [2022] KEHC 14627, the taxpayer argued that KRA had earlier confirmed its sale of land was subject to capital gains tax (CGT), not income tax. When KRA later assessed it for corporation tax, the taxpayer claimed legitimate expectation based on that earlier correspondence.
The court disagreed this position and found that the taxpayer had not disclosed all material facts particularly that the sale formed part of its normal business operations. Because the private ruling was issued on incomplete information, the court held that the taxpayer could not rely on it. Legitimate expectation, it said, arises only where there has been full disclosure and good faith.
This case reaffirmed that the protection of a private ruling evaporates the moment the taxpayer withholds or misrepresents facts.
The situation was different in the recent case of Commissioner of Domestic Taxes v Sendy Limited [2025] KEHC 14814. Here, the taxpayer had fully disclosed its operations before obtaining a private ruling in 2020.
Sendy operated a digital marketplace platform that connected independent transporters with customers in need of delivery services. The company collected payments from customers and remitted the balance to the transporters after deducting its commission for providing the platform.
To ensure compliance, Sendy sought clarification from KRA on who was responsible for accounting for VAT on the transport services.
KRA responded by confirming that the individual transporters, not Sendy, were liable for VAT on the transport services, while Sendy was required to account only for VAT on its commission income.
Yet, after an audit, KRA reversed its position arguing that Sendy was the true supplier of transport services and, therefore, liable for VAT on the full amount charged to customers.
Although the Tax Appeals Tribunal agreed with Sendy, the High Court overturned that decision. The High Court held that Sendy exercised decisive control over the transactions and was thus it was the principal supplier for VAT purposes.
Until clearer safeguards are embedded in law or practice, private rulings will remain useful but not foolproof, a guide, not a guarantee. In Kenya’s evolving tax landscape, even certainty now comes with an asterisk.
Crucially, the Court drew a sharp line between administrative rulings and judicial interpretation. While acknowledging that KRA’s conduct in disregarding its own ruling was ‘questionable,’ the Court held that a private ruling cannot override the correct statutory interpretation of the law by a court.
In short, even when fully disclosed and faithfully followed, a private ruling does not protect a taxpayer if the Court interprets the law differently.
A narrowing shield
The case studies highlight two distinct vulnerabilities in Kenya’s private ruling regime. In the first, protection failed because the taxpayer misrepresented the facts. In the second, it failed even though the taxpayer complied, the Court simply disagreed with KRA’s earlier interpretation.
This evolution leaves taxpayers in a difficult position. If a ruling can be vacated for misrepresentation on one hand, and judicial reinterpretation on the other, then the ‘binding’ comfort promised under Section 65 is becoming fragile.
For private rulings to remain meaningful, KRA must handle them with greater consistency and restraint, ensuring that reversals are transparent and prospective.
Equally, taxpayers must approach them with diligence, disclosing every material detail and documenting reliance comprehensively.