A High Court ruling has put the Kenya Revenue Authority’s debt recovery tactics under scrutiny after judges stopped the tax agency from accessing a company’s bank accounts over a Sh139.4 million claim, finding that the move was carried out without following the law.
The decision nullified agency notices that had been issued to NCBA Bank Kenya Limited and Stanbic Bank Kenya Limited, directing them to transfer funds held by Katahira & Engineers International Limited to settle the alleged tax arrears. The directives had resulted in the freezing of the firm’s accounts, disrupting its day-to-day operations and contractual commitments.
The contested notices were issued on December 15, 2025, under Section 42 of the Tax Procedures Act, which allows KRA to appoint third parties such as banks to collect unpaid taxes on its behalf.
Katahira & Engineers International Limited moved to court, arguing that the enforcement action went against an earlier ruling by the Tax Appeals Tribunal that had already cancelled the tax assessment forming the basis of the demand. The firm said the matter had been conclusively determined and could not be reopened.
In its filings, the company said the agency notices were issued “in blatant disregard of a valid, final and binding judgment” that had set aside the tax claims. It maintained that KRA no longer had the authority to pursue the matter, as it had become functus officio after the tribunal decision.
The firm further told the court that the freezing of its accounts caused “grave financial and operational prejudice,” affecting its ability to run normal business and honour agreements.
KRA defended its actions, insisting that the notices were based on new tax assessments and were issued within the law after the company failed to clear outstanding dues. The authority also argued that the company had not exhausted the available dispute resolution mechanisms before seeking court intervention.
However, the court found that KRA did not present any proof of fresh assessments or evidence that proper demand notices had been issued to the company before the directives were sent to the banks.
In its ruling, the court said enforcement through third parties such as banks is a drastic step that must be preceded by a clear assessment and a formal demand for payment.
“There was no demonstration of any assessment or demand for payment,” the court found, adding that the authority “jumped the gun” by proceeding directly to recover the funds.
The court emphasised that tax collection measures must comply with constitutional standards on fair administrative action, including openness, legality, and proper procedure.
While the Tax Procedures Act permits KRA to use agency notices to recover unpaid taxes, the court said this power is only valid where due process has been followed and the taxpayer has failed to respond to a lawful demand.
The company had argued that the notices were “illegal, irrational and procedurally unfair,” and accused the authority of misusing its powers.
The court agreed, finding that the enforcement violated the firm’s rights to fair administrative action and property.
It quashed the agency notices, effectively lifting the freeze on the company’s accounts. The court also issued an order of prohibition stopping KRA from enforcing or reissuing similar notices based on the same tax demand that had already been invalidated.
In addition, the court directed the authority to withdraw and vacate the notices issued to the two banks.
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