Businesses with outstanding tax debts and available VAT credits have received a major boost after the Tax Appeals Tribunal ruled that the Kenya Revenue Authority (KRA) can use available tax credits to offset tax liabilities before taking enforcement action.
The ruling followed a dispute involving a company that owed KRA KSh12.86 million in VAT. At the same time, the company had a VAT credit of KSh19.71 million.
The company asked KRA to use part of the available credit to clear the outstanding tax debt. However, the tax authority declined the request and instead moved to recover the money, including issuing notices to the company’s banks.
KRA argued that the KSh19.71 million was excess input VAT and should be carried forward to another tax period rather than being used to settle the existing tax debt.
The company challenged the decision before the Tax Appeals Tribunal, arguing that it had enough credit to fully clear the amount owed and that KRA should have considered its request before beginning enforcement action.
In its ruling delivered on July 27, 2026, the Tribunal rejected KRA’s position.
The Tribunal found that Section 47 of the Tax Procedures Act gives the Commissioner power to apply an available tax credit towards an existing tax liability where the conditions for a set-off are met.
It also ruled that the VAT Act does not prevent KRA from considering a taxpayer’s request to use a tax credit to settle an outstanding liability.
The Tribunal ordered KRA to issue the company with a Tax Compliance Certificate after applying the set-off.
It also ordered the tax authority to lift the agency notices issued to the company’s bank accounts pending the hearing and determination of the main appeal.
The decision could offer relief to businesses that have accumulated VAT credits while also facing demands to clear tax debts.
It means that where a taxpayer has a sufficient and undisputed tax credit, KRA should properly consider whether the credit can be used to settle the outstanding amount before taking enforcement measures.
The ruling comes as KRA continues efforts to collect outstanding taxes and encourages taxpayers to clear historical tax debts under the 2026 tax amnesty programme.
For businesses with both tax debts and available credits, the decision provides important guidance on how such balances may be handled.
However, the ruling does not mean that every tax debt will automatically be cancelled. Taxpayers must still meet the legal requirements for a set-off and have a valid credit available.
The decision is therefore expected to have an impact on businesses that have been struggling with tax liabilities while waiting to use accumulated VAT credits.