Chagaba v Artcaffe Coffee & Bakery Limited (Cause 1142 of 2017) [2023] KEELRC 89 (KLR)
The bottom line
#Kenya's Employment Court confirmed employers can lawfully deduct tax from compensation awards before paying employees, provided they remit it to KRA and issue a P9 certificate.
What this practically means
#Executive summary
#Key legal issues
#Whether an employer may deduct tax from compensation awarded under section 49(1)(c) of the Employment Act
Yes. Terminal dues under section 49(1)(c) are subject to statutory deductions so long as they fall above the tax bracket.
Section 49(2) of the Employment Act expressly provides that payments made under the section are subject to statutory deductions. The court followed Peris Njeri Kinyanjui v Kobo Safaris, Kioko Joseph v Bamburi Cement and Julius Wahome v Muki Sacco, which held that employers are obliged under section 37 of the Income Tax Act to deduct tax from lump-sum payments and remit it to KRA. The claimant's dues were within the taxable bracket, so the deductions were lawful.
Whether withholding tax could properly be deducted on the advocate's costs
Yes; the withholding tax of Kshs 3,449.00 on the advocates' costs was lawfully remitted to KRA, and the claimant's advocate would get a credit from KRA when paying annual income tax.
The applicant produced a Withholding Certificate dated 17/02/2022 showing the tax was effected on the advocate's costs of Kshs 80,000 on behalf of M/S Mwangi Wahome & Company Advocates, not on the claimant's behalf. The court was satisfied the certificate had been tendered to the appropriate authority and the advocate would claim a credit.
Whether the decree has been fully satisfied
Yes. Payments of Kshs 160,910 to the claimant, Kshs 75,172.86 to the claimant's advocate, Kshs 65,594.14 tax remitted to KRA and Kshs 3,449 withholding tax total the decretal sum of Kshs 301,617.50.
Having found the deductions lawful, the court computed the amounts paid and remitted and concluded the decretal amount of Kshs 301,617.50 had been satisfied, entitling the applicant to the declaration that execution was unwarranted.
Legal principles established
#- An employer is entitled to effect statutory deductions including tax on terminal dues awarded under section 49(1)(c) of the Employment Act before payment, provided the dues fall within the taxable bracket.
- Where an award is within the taxable bracket, the employer must deduct, retain and remit statutory dues to KRA and issue the employee the necessary P9 form.
Court orders
#- 1.The Decree dated 23rd December 2021 arising from the Consent Judgment of the parties dated 26th October 2021 has been fully satisfied by the Respondent/Applicant
- 2.The Applicant to supply the claimant with the requisite P9 tax certificate and the withholding tax certificate to the claimant's advocate
- 3.Each party to bear her/its own costs
- Jurisdiction invoked
- Rule 12(3) of the Employment and Labour Relations Act 2014; sections 1A, 1B and 3A of the Civil Procedure Act; Order 22 of the Civil Procedure Rules 2010
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (1)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
- Kassim Abdulatiff Mohamed v Barclays Bank of Kenya Limited[2026] KECA 75 (KLR)30 Jan 2026followed
Cite this brief
#Cite this brief
Caselaw, "Chagaba v Artcaffe Coffee & Bakery Limited (Cause 1142 of 2017) [2023] KEELRC 89 (KLR)", Case Analysis (2023). Cause No 1142 of 2017. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2023/89/eng@2023-01-19
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.