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ELRCAllowedCause No 1343 of 2010· [2019] KEELRC 55 (KLR)

Charles Muthama v Wananchi Group (K) Limited [2019] KEELRC 55 (KLR)

Employment and Labour Relations Court
2 December 2019
HWHellen Wasilwa
2,575 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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A Kenyan court confirmed employers must deduct PAYE from court-awarded terminal benefits, and stopped an employee from executing for tax already deducted.

What this practically means

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Executive summary

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Wananchi Group (K) Ltd, the Respondent/Applicant, filed a Notice of Motion dated 13/06/2019 under Order 22 Rule 22 of the Civil Procedure Rules and Sections 1A, 3A and 63(e) of the Civil Procedure Act seeking stay of execution of decrees arising from the court's award of 08/10/2015 and the Court of Appeal's decision of 15/12/2017. The applicant contended that on 4 June 2019 it paid Kshs. 1,513,089/- in satisfaction of the decretal sum, after deducting PAYE, yet on 7 June 2019 the claimant's advocates instructed Mambu Auctioneers to proclaim property for Kshs. 2,849,746/-. The Claimant/Respondent opposed, arguing that the consent settlement of 13/03/2019 made no provision for taxes, that no employer/employee relationship subsisted at the time of payment, that terminal benefits awarded by a court are not emoluments taxable under the Income Tax Act, and that the applicant proved no remittance to KRA. The applicant relied on Section 37 of the Income Tax Act and Section 49(2) of the Employment Act, plus authorities including Kioko Joseph v Bamburi Cement Ltd, asserting an employer's statutory obligation to deduct tax on lump-sum payments. The claimant relied on Ibrahim Manyara v ASK, where Marete J held decretal sums are not income. Wasilwa J agreed with the applicant, holding the employer was mandated by law to deduct tax and remit it to KRA, remittance being a matter between the employer and KRA so long as the claimant is issued a P9 certificate. The court allowed the application, granting stay of execution pending reconciliation of the decretal sum against tax remittances by the Deputy Registrar, with no order of costs.

Key legal issues

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01

Whether PAYE is deductible from a decretal amount representing terminal benefits for unfair termination

Holding

Yes; the employer was mandated by law to deduct tax and remit it to the Kenya Revenue Authority.

Reasoning

The court relied on Section 49(2) of the Employment Act, which subjects payments made by an employer under that section to statutory deductions, and agreed with the holding in Kioko Joseph Kilinda (supra) that the employer is obligated to deduct statutory deductions on all payments made. Whether the employer remitted the tax is a matter between the employer and KRA.

p. 4
02

Whether execution on the taxed amount should be stayed

Holding

Stay of execution granted pending reconciliation by the Deputy Registrar.

Reasoning

The court found the application had merit, given that the applicant had deducted tax as mandated and the claimant sought to execute for amounts already deducted as tax. Reconciliation of sums paid against tax remittances was to be undertaken by the Deputy Registrar.

p. 4

Legal principles established

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  • Payments made by an employer under Section 49 of the Employment Act are subject to statutory deductions, including PAYE on decretal amounts for terminal benefits.

Court orders

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  1. 1.Stay of execution granted pending reconciliation of the decretal sum paid against tax remittances, to be done by the Deputy Registrar
  2. 2.No order of costs

Authorities

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Legislation

  • Civil Procedure RulesOrder 22, Rule 22
  • Civil Procedure ActSections 1A, 3A, 63(e)
  • Income Tax Act, Cap 470Section 37
  • Income Tax RulesRule 2(a)
  • Employment Act 2007Sections 17, 19, 49(2)
  • Constitution of KenyaArticle 210

Cases cited (6)

  • Kioko Joseph [suing as the representative of the estate of Joseph Kilinda] v Bamburi Cement Limited
    [2016] eKLR
  • Andrew Mukite Saisi v Tracker Group of Companies
    Cause No. 748 of 2011 (Nairobi)
  • Directline Assurance Co. Ltd v Jeremiah Wachira Ichaura
    [2016] eKLR
  • Andrew Mwanjala Mwandawiro v SDV Transami Kenya Limited
    [2016] eKLR
  • Margaret Auma Ingwe v Kenya Power and Lighting Company Limited
    [2016] eKLR
  • Ibrahim Manyara v Registered Trustees of Agricultural Society of Kenya (ASK)
    [2014] eKLR
Jurisdiction invoked
Order 22 Rule 22 of the Civil Procedure Rules and Sections 1A, 3A and 63(e) of the Civil Procedure Act

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Charles Muthama v Wananchi Group (K) Limited [2019] KEELRC 55 (KLR)", Case Analysis (2019). Cause No 1343 of 2010. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2019/55/eng@2019-12-02

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