Small traders seeking to block the Kenya Revenue Authority (KRA) from placing them on the value-added tax (VAT) Special Table — an administrative procedure that restricts the filing of tax returns for non-compliance— have suffered a setback after the Tax Appeals Tribunal ruled that it lacks the powers to stop the taxman from doing so.
In a far-reaching decision, the tribunal rejected an application by event planner Milele Tents seeking to restrain the KRA's Commissioner for Micro and Small Taxpayers from placing it under the administrative mechanism used to monitor non-compliant taxpayers. The tribunal held that granting such orders would amount to issuing "speculative" or "anticipatory" relief.
The ruling gives the KRA wide discretion to place taxpayers it suspects of VAT non-compliance on the Special Table — a move that can severely disrupt cash flows and potentially cripple thousands of small businesses. Firms placed on the Special Table are effectively locked out of filing VAT returns, while compliant businesses tend to avoid transacting with them because they cannot claim input VAT or offset VAT paid on purchases against output tax.
Milele Tents had sought leave to file a notice of appeal against a KRA objection decision in which the tax authority raised a VAT assessment of Sh12,274,040.78 against the Athi River-based firm. Milele objected to the assessment, but after KRA affirmed its position, the company was required to appeal to the tribunal within 30 days of receiving the objection decision. Failure to do so meant the tax became payable.
The company told the tribunal that it intended to appeal the failure by KRA to issue a proper objection decision and warned that unless the tribunal granted a stay of the notice to place it on the VAT Special Table, the appeal would be rendered meaningless and it would suffer irreparable losses.
However, the tribunal ruled that Milele's application was fatally flawed, noting that the firm failed to appeal the objection decision within the statutory 30-day window.
It further held that it had no jurisdiction to issue anticipatory or speculative orders relating to administrative actions that had not yet occurred, emphasising that placement on the VAT Special Table is an internal administrative process of the tax authority.
"The Tribunal is of the view that the VAT Special Table is a monitoring mechanism that flags VAT-registered taxpayers who demonstrate specific patterns of non-compliance," said the five-member bench in a decision delivered on December 5, 2025.
"Once flagged, these taxpayers are restricted from filing VAT returns through the iTax portal until the identified issues are resolved. The Tribunal's mandate is limited to dealing with tax decisions that have crystallised and been communicated to the taxpayer."
"It cannot suspend, stay, or restrain possible future administrative actions that have not crystallised into a tax decision capable of appeal," the tribunal added.
The ruling is a blow to small businesses that risk being placed on the VAT Special Table on grounds including suspected involvement in fraudulent schemes such as the "missing trader" scheme. Under this scheme, fictitious invoices are issued to create the appearance of business transactions where no goods or services were supplied.
Other actions that may land a taxpayer on the VAT Special Table include failure to remit VAT collected from clients, persistent filing of credit returns, and claiming input VAT from non-existent or invalid suppliers.
Last year, lawyers representing about 5,030 companies placed on the VAT Special Table went to court to challenge the KRA's decision, arguing that the move had paralysed their operations. The petition, filed at the High Court, was scheduled for mention on June 9, 2025.
The KRA told the tribunal that it continues to spend billions of shillings refunding VAT to taxpayers, noting that VAT accounts for the largest share of tax expenditure, or foregone revenue. According to National Treasury data, VAT expenditure fell to Sh204.5 billion in 2024 from Sh242.6 billion the previous year.
The tribunal cited the authority as saying VAT's domestic contribution declined from 76.68 percent in 2022 to 65 percent in 2023 — a drop that has affected the entire revenue chain and constrained the government's ability to collect revenue.
"This decline is attributed to several factors, key among them the impact of missing traders' schemes, which exploit VAT system rules by introducing fictitious inputs, allowing certain taxpayers to benefit unfairly while depriving the government of revenue," reads the judgment.
The tribunal added that the decline is further exacerbated by taxpayers who file returns but fail to remit taxes due, as well as those who consistently submit credit returns supported by questionable or unverifiable input claims.
"The Respondent is therefore justified in issuing the Applicant with the notice dated September 26, 2025, seeking to place it on the VAT Special Table to monitor its activities," the tribunal ruled.
The tax authority says VAT collections have been on a downward trend, partly due to fraud such as the notorious missing trader scheme, where fictitious invoices are used to fabricate transactions. Payments are then falsified to support claims for input VAT refunds, bleeding the Exchequer billions of shillings.
An internal KRA memo on tax compliance among micro and small taxpayers shows that some dishonest traders transmit invoices through the Electronic Tax Invoice Management System, but either fail to declare the transactions or do not remit the VAT owed.
