An heir of supermarket chain Naivas Limited, Peter Mukuha Kago, has won a Sh777 million tax dispute against the Kenya Revenue Authority (KRA) over the financial operations of a firm that provides staffing and recruitment services to the giant retailer.
The High Court ruled in favour of HR consultancy firm Achievo Limited, associated with Mr Mukuha, arguing that the bulk of the cash it received from Naivas was not taxable income because it was for salaries and other staff costs.
The dispute followed an audit of Achievo’s financial books between 2019 and 2023, which triggered a demand of Sh777 million in value-added tax (VAT) and Sh102 million in income tax.
Court papers show that the KRA had initially asked for a sum of Sh962.7 million, but it revised the figure downwards to Sh777 million following an objection by the consultancy firm.
The court ruled that money Achievo received from Naivas to pay staff was a disbursement and therefore not subject to VAT and income tax.
‘The court is satisfied that the staff costs answer the description of a disbursement made by the appellant, as agent of Naivas Limited, to a third party (the deployed employees), and are accordingly excluded from the taxable value of the appellant’s supply by the proviso to section 13(5) of the VAT Act,’ said the judge.
The judge also overturned a May 2025 Tax Appeals Tribunal decision that had upheld KRA’s demand from the audit against Achievo.
‘I do not agree with the Tribunal’s reasoning and conclusions contained in the impugned judgment, which elevated the failure by the appellant to avail bank statements as a decisive factor in the circumstances of the case,’ he added.
Achievo was incorporated in 2013 and is linked to Naivas’ heir Peter Mukuha Kago, a member of the family of the retailer’s founder who died in 2010, leaving a vast estate. The founder shares the name with the heir.
Court papers show Achievo provided workers to Naivas Limited, with which it is associated by common directorship. Mr Kago is Deputy Managing Director and Chief of Operations of the retailer.
Under a Service Level Agreement between it and Naivas, it was mandated to hire staff and deploy them to work for Naivas supermarket stores.
The court ruled that money Achievo received from Naivas to pay staff was a disbursement and therefore not subject to VAT and income tax.
It said that the money was reimbursements, not income earned by the company, and therefore was not subject to VAT.
KRA had treated amounts paid by Naivas to Achievo, including salaries and statutory deductions for workers deployed to Naivas stores, as taxable value for VAT.
The authority said the salary costs were part of Achievo’s own costs in providing labour services and should be included in the taxable amount.
But Achievo contended that it received and disbursed the money, described as the staff costs, without mark-up, as agent of Naivas Limited, separately from the agency or management fee on which it duly accounted for VAT.
The dispute centred on Section 13(5) of the VAT Act, which generally includes costs incurred by a supplier when providing services, but excludes payments made by an agent for a client.
KRA’s original objection decision confirmed Sh962.7 million as due, but a partial consent recorded on November 29, 2024 reduced the amount under dispute to Sh777 million.
Achievo appealed to the Tax Appeals Tribunal, which dismissed the case on May 2, 2025.
The Tribunal accepted that the service agreement described Achievo as Naivas’s agent for some purposes, but found that the company had not proved that the staff-cost reimbursements were fully passed to employees.
It relied partly on Achievo’s failure to produce bank statements showing the movement of the money.
Achievo challenged that finding at the High Court, arguing that KRA had never asked for bank statements during the objection process.
Allowing the second appeal, the court found that KRA had only asked Achievo for seven categories of documents, including invoices, payroll records, NSSF remittances, employee contracts, service agreements and proof of payments.
‘Notably, bank statements did not form part of the documents requested,’ the court said in the judgment dated September 22, 2026.
‘Had the respondent considered those statements critical to the determination of the VAT dispute, nothing would have been easier than expressly requiring their production together with the other documents sought,’ it added.
The court held that the tax assessment and objection process did not require Achievo to prove that every shilling received for staff costs had been paid to employees.
‘By elevating the absence of bank statements into a decisive factor,’ the judge said, ‘the Tribunal, in my view, conflated the burden of proof with a requirement to produce documents whose relevance to the dispute had not been demonstrated.’
He found that staff payments and amounts involved were not disputed during the audit or objection stages.
‘The dispute between the parties-as evidenced by the letters of audit assessment, the Notice of Objection, and the Objection Decision-was purely legal,’ the court said.
It upheld the Tribunal’s finding that Achievo and Naivas had an agency relationship under their agreement and addendum.
The court found that the direct staff costs matched the payroll records and that KRA had not alleged that Achievo retained any part of the money or added a profit margin.
It rejected KRA’s argument that Achievo’s status as the workers’ legal employer prevented the payments from being treated as disbursements.
‘The proper question for consideration for purposes of section 13(5) of the VAT Act ought to have been whether the appellant merely administered and paid over the employment costs for and on behalf of Naivas,’ the court said.
It concluded that the staff costs were payments made for Naivas and were excluded from the taxable value under Section 13(5).
The court also referred to changes made by the Finance Act 2026, which expressly excluded employee costs, salaries, statutory deductions and other employment-related costs in labour outsourcing arrangements from VAT.
The judge stressed that the amendments did not apply to Achievo’s disputed period, but said they were consistent with what he considered a clarification of the existing position.