Samson Njigoya Mbutu v Kenya Marine & Fisheries Research Institute [2014] KEELRC 1251 (KLR)

Employment and Labour Relations Court

9 September 2014

RSRadido Stephen

681 words in judgment

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The bottom line

A Kenyan court confirmed employers can deduct PAYE from retirement benefits unless a tax exemption has been formally granted.

What this practically means

Executive summary

The Claimant, employed by the Respondent from 1989, took voluntary early retirement with effect from 1 October 2010 under a scheme the Respondent introduced in 2010 to address an unsustainable wage bill. His retirement benefits were computed at Kshs 942,208/-. He was paid Kshs 559,694/20 after the Respondent retained Kshs 228,593/80 as income tax/PAYE. He claimed the retained sum, contending he was entitled to full payment without tax deduction. The Respondent maintained that PAYE was a mandatory statutory deduction, that it had sought exemption from the National Treasury for staff retiring under the scheme, but no exemption had been granted; deliberations were ongoing as late as 2013. The parties agreed to have the cause determined on pleadings, documents and written submissions, but neither party complied with the court's peremptory directions to file submissions, which the court noted with displeasure. On the merits, the court held that the Claimant had laid no statutory foundation for the claim: under the Income Tax Act retirement benefits are taxable unless exemption has been granted, and under section 49 of the Employment Act, 2007 even court awards are subject to statutory deductions. The claim was dismissed with no order as to costs, with the court observing that the Claimant may pursue the exemption question with his former employer and the National Treasury.

Key legal issues

Whether an employee retiring under a voluntary early retirement scheme is entitled to receive retirement benefits free of PAYE deductions absent a statutory exemption

Holding

The claim fails because retirement benefits are taxable unless exemption has been granted, and none had been granted; the employer was obliged to deduct and remit PAYE

Reasoning

The court found no statutory basis for the claim. Under the Income Tax Act, retirement benefits are taxable unless an exemption is granted. The Respondent had applied to the National Treasury for an exemption but none was given by the time of the suit, and deliberations were still ongoing as late as 2013. Section 49 of the Employment Act, 2007 further subjects court awards to statutory deductions. Sympathy for the Claimant could not substitute for a statutory foundation for the claim.

p. 2

Legal principles established

Retirement benefits are subject to income tax unless an exemption has been granted under the Income Tax Act, and even court awards are subject to statutory deductions under section 49 of the Employment Act, 2007

Court orders

1.The Memorandum of Claim dated and filed on 12 August 2013 is dismissed
2.No order as to costs

Authorities

Legislation

Income Tax ActNot specified (taxability of retirement benefits)
Employment Act, 2007Section 49

Jurisdiction invoked: Employment and labour relations jurisdiction of the Employment and Labour Relations Court (Cause concerning a memorandum of claim under the Employment Act, 2007)

Key timeline

Practical implications

Frequently asked questions

Cite this brief

Caselaw, "Samson Njigoya Mbutu v Kenya Marine & Fisheries Research Institute [2014] KEELRC 1251 (KLR)", Case Analysis (2014). Not stated in the judgment. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2014/1251/eng@2014-09-09

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.