Supreme Court Validates Tax Waivers for Japanese Infrastructure Firms

The Supreme Court has dismissed an appeal challenging tax waivers granted to Japanese contractors, consultants, and workers involved in key infrastructure projects across Kenya.

The apex court upheld Legal Notice No. 15 of 2021, affirming that the National Treasury acted within the law when issuing income tax exemptions.

The legal challenge, brought by activist Eliud Karanja Matindi, sought to overturn tax waivers embedded in bilateral financing agreements signed between Kenya and Japan between 2007 and 2020.

In the judgment delivered by Deputy Chief Justice Philomena Mwilu, the bench affirmed that Parliament lawfully delegated exemption powers to the Cabinet Secretary under Section 13(2) of the Income Tax Act (ITA).

The court concluded that the legal notice constituted an administrative action to implement existing bilateral commitments rather than new legislation requiring public participation.

The petition had claimed that the tax waivers violated Article 210 of the Constitution and created discrimination between Japanese and local workers performing similar duties. The judges ruled that the underlying bilateral agreements were not directly produced or challenged as evidence to substantiate the discrimination claim.

The ruling resolves a four-year legal dispute that began when the High Court quashed the notice in 2023, a decision later reversed by the Court of Appeal in late 2024.

By dismissing the final appeal, the apex court has preserved the execution of major Japanese-funded development projects valued at hundreds of billions of shillings.

Among the key developments tied to the tax framework are the Mombasa Gate Bridge, the Dongo Kundu Special Economic Zone (SEZ), and expansion works at the Mombasa Port. Other affected ventures include the Olkaria geothermal power developments, the Olkaria-Lessos-Kisumu transmission line, the Mwea Irrigation Development Project, and regional power distribution upgrades in Nakuru and Mombasa.

The decision provides legal certainty for international development partners and bilateral lenders offering concessional financing for major infrastructure projects.

Furthermore, the court noted that Parliament retains its oversight authority, as the National Assembly can review and annul any Treasury tax exemption notice within twenty sitting days of its tabling.