The Supreme Court has upheld tax exemptions for Japanese companies, consultants and workers involved in development projects in Kenya, dismissing a challenge that argued the waivers were unconstitutional. The ruling ends a legal fight over a 2021 Legal Notice from the National Treasury that exempted certain foreign-earned income from local taxes.
Petitioner Eliud Karanja Matindi had argued that the exemptions violated the Constitution because they were introduced through a legal notice rather than legislation passed by Parliament. He also claimed the underlying loan agreements between Kenya and Japan were negotiated without sufficient transparency.
The court found that Matindi failed to prove the exemptions were discriminatory or unconstitutional. It held that income from foreign sources earned by people working in Kenya under technical assistance or development services agreements can lawfully be exempted under the Income Tax Act.
The central question was whether the Treasury’s legal notice counted as a statutory instrument requiring parliamentary approval and public participation. The Supreme Court said it did not.
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“The Legal Notice did not also create any rule, order or regulation in the manner specified above,” the judges wrote. “Consequently, we find that the impugned Legal Notice was administrative in nature and did not acquire a legislative character to demand the procedure that the appellant has pleaded.”
Attorney-General Dorcas Oduor had argued that the Treasury Cabinet Secretary acted within powers granted under Section 13(2) of the Income Tax Act and that the notice was properly tabled before the National Assembly. The government also maintained that public participation was not required since the exemptions came from intergovernmental agreements.
Matindi had pointed to Article 210 (1) of the Constitution, which says no tax may be waived except as authorized by legislation. The court disagreed that the provision applied here. It noted that the notice simply informed the public of how existing financing agreements between Kenya and Japan would be implemented.
“Had such authority not been provided in law, then the position would certainly have been different,” the court said, “noting the express provisions of Article 94 (5) where other persons or bodies may be conferred certain functions having the force of law by the Constitution or by legislation.”
The disputed Legal Notice exempts from income tax the earnings of Japanese firms, consultants and workers engaged in 16 development projects worth about 328 billion shillings. The government argued that such exemptions are a standard condition imposed by Japan on all countries receiving its development financing, not just Kenya.
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The projects span several sectors. They include improvement of power distribution systems in Nakuru and Mombasa, infrastructure development in the Mombasa Special Economic Zone near Dongo Kundu, the Olkaria I Unit 4 Geothermal Power Project, and the Mwea Irrigation Development Project.
The state argued that Kenya was obliged to honor these agreements to secure foreign financing and maintain its international commitments. Without the exemptions, the government said, such development funding could be put at risk.
Foreign-funded technical assistance projects often carry tax provisions that differ from domestic law. The court’s decision creates a clear line: administrative notices implementing bilateral agreements do not need to follow the same process as new legislation. That distinction may matter for other countries with similar financing arrangements in Kenya, though each case would turn on the specific language of the relevant statutes and agreements.
The Supreme Court also found that the Treasury Cabinet Secretary acted within authority delegated by Parliament under Section 13 of the Income Tax Act. The judges rejected the argument that the exemptions amounted to an unlawful delegation of legislative power. “Administrative in nature” was the phrase that carried the day — the notice did not change the law, it merely applied existing law to a specific set of agreements.
