REVENUE WITHOUT REASON: RETHINKING TAX ENFORCEMENT AND COMMERCIAL INTEGRITY IN KENYA

#The power to tax is the power to destroy when exercised without thought, structure, or vision#

Introduction

What if tax enforcement didn’t just collect revenue, but slowly and quietly broke the businesses it was meant to support

When taxation is rolled out absent strategic foresight, legal clarity, or thoughtful design, the consequences extend beyond revenue inefficiencies; they ripple into the commercial ecosystem. The High Court’s Judgment in Kamau & 33 Others v Commissioner General, KRA & Another [2025] KEHC 9039 (KLR), Although the case was dismissed on procedural grounds, it exposed deep cracks in how Kenya approaches tax enforcement—particularly for micro-enterprises

Why This Case Matters

This case is a canary in the coal mine. It shows how:

Ambiguous laws + aggressive enforcement = commercial risk
Poor procedural advice = lost cases, even when arguments are valid
Tax pressure without strategy = fewer compliant businesses

It stands as a reminder that well-meaning regulation, if untethered from procedural technicalities and aligned enforcement, may inadvertently disrupt the very economic stability it aims to protect. Though dismissed for failure to exhaust remedies under the Tax Appeals Tribunal Act, the petition calls attention to the need for coherence between tax policy, administrative conduct, and the legal channels available for redress.

The Digest; What happened ?

In Kamau & 33 Others, a group of small scale water refilling business owners challenged a public notice issued by KRA on 17 July 2020. The notice categorized water vending, specifically refilling purified water into customer provided containers, as a form of manufacturing under Section 2 of the Excise Duty Act. KRA directed such businesses to obtain excise licenses, affix excise stamps, and remit duty pursuant to Section 5.
The Petitioners argued that their operations did not involve purification or bottling and therefore did not qualify as “manufacture.” Their role was limited to purchasing already purified water from licensed producers and dispensing it to end users via vending machines. They alleged that KRA’s enforcement actions such as shop closures, asset seizures and fines, violated constitutional protections under Articles 10, 27, 40, 47, 201, and 210.

KRA defended its position by asserting that refilling constituted packaging and thus fell under the scope of excisable activities. It cited the Petitioners’ earlier compounding agreements under Section 109 of the Tax Procedures Act as evidence of admitted liability. Further, KRA invoked the doctrine of exhaustion, arguing that the dispute should have been filed at the Tax Appeals Tribunal per Section 12 of the Tax Appeals Tribunal Act and Section 9 (3) of the Fair Administrative Action Act.
The Court agreed. It held that while the Petition raised constitutional questions, the substance of the dispute lay in the administration of tax statutes. It ruled that the Tax Appeals Tribunal was the appropriate forum and dismissed the case for want of jurisdiction.

The dismissal, while procedurally sound, left unresolved significant questions about proportionality in tax enforcement and clarity in statutory interpretation.

Implications

1. Regulation without design hurts everyone

KRA’s approach to re-defining “manufacture” via a public notice, without a clear regulatory backing creates confusion and undermines the trust in the tax system. Further, it highlights a persistent policy tension: the fine line between administrative interpretation and legislative overreach.

When regulatory agencies rely on public notices to extend statutory meaning, they risk stepping outside the framework envisioned by Parliament. Article 210(1) of the Constitution affirms that no tax may be imposed except as authorized by law. Without clear legal parameters, enforcement becomes unpredictable, eroding the trust and certainty upon which private sector planning depends.

2. Poor Litigation Strategy = Lost Causes

The Petitioners’ direct filing at the High Court was a fatal procedural error. Unfortunately this is not a unique error. Many taxpayers ( and sometimes Lawyers ) lack clear guidance on where to take tax disputes.

‘The strongest arguments will fail when routed through a wrong forum’

3. Over Enforcement leads to Economic harm /Distortion

Micro enterprises, like water vendors, cannot sustain neither can they absorb the cost of complex compliance and licensing. Aggressive enforcement not only shrinks the tax base, undermines tax morale but narrows long term revenue prospects. An inflexible compliance model that serves neither the Treasury nor the taxpayer.

5. A Window for Systemic Realignment

Despite the dismissal, the case can catalyze reforms; both legal and institutional. It underscores the need to harmonize tax interpretation, administrative fairness, and accessibility of dispute mechanisms.

Recommendations

Clearer Law: The Excise Duty Act should be amended to provide a more precise and commercially sensitive definition of “manufacture” and “packaging” as they apply to resale or water vending operations. This revision could draw from public consultations and comparative tax frameworks to ensure consistent and fair application.

Procedural Literacy: The Judiciary, KRA, and LSK should collaborate to deliver targeted training, through CPD sessions and user committee outreach, explaining the jurisdictional structure under the Tax Appeals Tribunal Act. Improved procedural literacy will reduce premature filings and foster more efficient resolution of tax disputes.

Tiered Compliance for Micro Enterprises: KRA should adopt threshold-based compliance frameworks similar to turnover tax models. This could include simplified licensing regimes, onboarding support for newly formalized businesses, and enforcement grace periods tailored to micro-enterprises; especially in high-volume, low-margin sectors like utilities.

Institutional Litigation Gatekeeping: Government legal departments, particularly within KRA and the Attorney General’s Office, should establish internal constitutional compliance audits before defending contested enforcement measures. Pre-litigation risk assessments can prevent avoidable constitutional clashes and enhance the credibility of state enforcement.

Taxpayer / Business- side Readiness and Legal Advisory: The private sector, especially in regulated or transitional industries, should institutionalize legal and tax advisory support. Industry associations, SMEs, and cooperatives can benefit from periodic compliance clinics, early warning systems on regulatory shifts, and access to pro bono or subsidized advisory services to manage exposure proactively.

Conclusion

Kamau & 33 Others illustrates that taxation is not merely an exercise in revenue raising but also a tool of governance, with commercial, legal, and constitutional dimensions. When tax enforcement outpaces legal clarity, and when legal strategy ignores procedural structure, both the state and the citizen lose.

The goal is not to insulate taxpayers from compliance, but to ensure that enforcement, legislation, and adjudication remain aligned. Only then can taxation become what it ought to be: a legitimate, predictable, and sustainable lever of national development.

Need Help Navigating Compliance or Dispute Risks?

If you’re unsure whether your business is fully aligned with evolving tax classifications or you’re facing unclear enforcement from regulators our team can help. We support SMEs, associations, and regulated businesses with structured legal advice, compliance clarity, and dispute strategy that protects your operations before problems escalate.

Reach out to schedule a confidential consultation or request a tailored compliance review.

Contact us : info@wmcoadvocates.co.ke

Authors:

Waithira Mugo & Mike Ogutu.