James Kithinji v Jamii Co-operative Savings and Credit Society Ltd

employment, and that judgment was delivered by Ocharo Kebira J. on 8th March 2024. 4 The Claimant/Applicant states that the Court found his termination to have been both procedurally and substantively unfair and awarded him one month’s salary in lieu of notice of Kshs. 78,094 and compensation for unfair termination equivalent to seven months’ gross salary amounting to Kshs. 546,658. He states that the total decretal sum was therefore Kshs. 624,752, for which a decree was subsequently issued. 5 The Claimant/Applicant avers that the Respondent paid him Kshs. 441,679, allegedly being the decretal sum less PAYE. He states that, vide a letter dated 7 th May 2025, he contested the PAYE deductions, relying on the Kenya Revenue Authority Employer’s Guide to PAYE on compensation for loss of employment for an unspecified period. He consequently demanded payment of the balance of Kshs. 120,597.80. 6 It is the Claimant/Applicant’s case that the Respondent has declined to pay the balance or provide evidence demonstrating how it arrived at the sum of Kshs. 441,679 after tax. He contends that the PAYE deducted was excessive and contrary to the applicable tax regime. 7 He further asserts that compensation for loss of employment paid as a lump sum is not ordinarily taxed in the same manner as monthly salary, but is spread forward for three years and subjected to taxation without tax relief. Page 2 of 10

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8 It is his case that the decretal sum of Kshs. 624,752 is subject to statutory deductions in accordance with Section 49 of the Employment Act, read together with Sections 3(2)(a)(ii) and 5(2)(c) of the Income Tax Act and the Kenya Revenue Authority Employer’s Guide to PAYE. 9 The Claimant/Applicant further states that, pursuant to Section 37 of the Income Tax Act, it is the Respondent’s obligation to deduct and remit the appropriate tax on the lump-sum compensation. 10 He contends that the Respondent’s deduction of excessive PAYE was unlawful and ought to be reversed, and that the balance due to him should accordingly be paid. Respondent’s Case 11 In opposition to the application, the Respondent filed a Replying Affidavit dated 19th September 2025, sworn by its Manager Human Resource & Administration, Janett Ndirangu. 12 It is the Respondent’s case that the application is bad in law, incompetent and devoid of merit, and ought to be dismissed with costs. 13 The Respondent states that, pursuant to the judgment delivered on 8th March 2023, the Claimant was awarded a decretal sum of Kshs. 624,752 together with costs of the suit. It further states that the costs were assessed at Kshs. Page 3 of 10

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114,580 and duly paid to the Claimant’s then Advocate on record. 14 The Respondent avers that, in compliance with Section 49(2) of the Employment Act, 2007 and the applicable tax laws, it computed and deducted the Claimant’s statutory PAYE obligations from the decretal sum for remittance to the Kenya Revenue Authority. It contends that the deductions were mandatory and not discretionary, and that it was under a legal obligation to deduct and remit the same. 15 The Respondent further states that the decretal sum was processed through its April 2024 payroll, through which the applicable statutory deductions were made and remitted to KRA together with the deductions for its other employees. It asserts that, upon remittance, the statutory deductions ceased to be within its possession, custody or control. 16 It is the Respondent’s case that, after the statutory deductions, the net decretal sum of Kshs. 441,824.50 was duly paid to the Claimant’s Advocate by cheque dated 9 th April 2024. The Respondent therefore contends that it fully complied with the judgment and had no further sum payable to the Claimant. 17 The Respondent argues that the Claimant’s demand for a refund of the statutory deductions from the Respondent is misconceived and contrary to Section 49(2) of the Employment Act. It avers that PAYE constitutes the employee’s tax obligation and that any dispute concerning Page 4 of 10

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the amount deducted or refund due lies against the relevant tax authority and not the employer. 18 The Respondent further contends that, having lawfully deducted and remitted the PAYE, it cannot refund monies that are no longer within its possession and which were remitted pursuant to a statutory obligation. It maintains that allowing the application would result in unjust enrichment and would unnecessarily reopen a matter that has already been fully settled. 19 It is the Respondent’s case that the application is an afterthought, frivolous, misconceived and an abuse of the Court process, and urges the Court to dismiss it with costs in the interests of justice and finality of litigation. Claimant/Applicant's Submissions 20 It is the Claimant/Applicant’s submissions that the issue for determination is whether the Respondent applied the correct method of taxation to the lump-sum payment awarded as compensation for loss of employment. 21 The Claimant/Applicant submitted that it is not disputed that he was no longer an employee of the Respondent following the termination of his employment and, consequently, the compensation awarded by the Court could not properly be taxed in the same manner as ordinary monthly salary. He argued that the law provides a distinct method for taxation of lump-sum compensation arising from termination of employment. Page 5 of 10

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22 It was submitted that the decretal sum of Kshs. 624,752 was subject to PAYE, but that the applicable method of taxation was governed by Section 37 of the Income Tax Act. The Claimant/Applicant treatment employment, of relied compensation under which for on the statutory termination compensation under of a specified-term contract is assessed over the unexpired period, while compensation under an unspecified-term contract is spread forward and taxed at the rate applicable to the employee’s gross annual pay immediately before termination. Where the contract does not provide for compensation, the amount is treated as having accrued evenly over a period of three years immediately following termination. 23 He submitted that the compensation awarded in the present case was for loss of employment and was not provided for under the employment contract. It therefore argued that the decretal sum of Kshs. 624,752 ought to be spread evenly over three years and subjected to PAYE without deduction of tax relief. 24 On that basis, the Claimant/Applicant submitted that the correct PAYE payable was Kshs. 62,475.20, rather than the amount deducted by the Respondent. It consequently claimed Kshs. 120,597.80, being the balance allegedly arising after deducting the correct PAYE from the decretal sum and accounting for the amount already paid. Page 6 of 10

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25 The Claimant/Applicant further submitted that it was the Respondent’s statutory responsibility to deduct and remit the correct amount of PAYE to the Kenya Revenue Authority. He therefore urged the Court to allow the application and order the Respondent to pay him Kshs. 120,597.80. Respondent’s Case 26 It is the Respondent’s submissions that the issues for determination are whether the decretal sum awarded under Section 49 of the Employment Act is subject to statutory deductions, whether the Respondent lawfully deducted and remitted PAYE, and whether the Court can order the Respondent to release to the Claimant sums already deducted and remitted to the Kenya Revenue Authority. 27 On the first issue, the Respondent submitted that Section 49(2) of the Employment Act is couched in mandatory terms and expressly provides that “Any payments made by the employer under this section shall be subject to statutory deductions.” It therefore argued that compensation, notice pay and other sums awarded under Section 49 are subject to statutory deductions before payment. 28 The Respondent relied on Peris Njeri Kinyanjui v Kobo Safaris Limited [2017] KEELRC 1813 (KLR), where the Court held that tax deductions, including PAYE, constitute Page 7 of 10

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statutory deductions within the meaning of Section 49(2), and that an employer is entitled to deduct and remit the same to KRA. On that basis, the Respondent submitted that the decretal sum awarded to the Claimant was lawfully subject to PAYE. 29 On the second issue, the Respondent submitted that it complied with its statutory obligation by computing and tabulating the Claimant’s PAYE deductions and subsequently remitting the deducted amount to KRA. It argued that the deduction was not discretionary but was required by Section 49(2) of the Employment Act and the applicable tax laws. 30 The Respondent further submitted that there was no evidence that it had been faulted, penalized or cited by KRA in respect of the computation or remittance of the Claimant’s PAYE. It argued that once deducted, PAYE does not remain in the employer’s possession or accrue for its benefit, but constitutes tax due from the employee’s employment income and is remitted to KRA through the employer’s payroll system. 31 It was therefore submitted that, to the extent that the Claimant disputed the correctness of the PAYE computation, his recourse lay with the Kenya Revenue Authority, being the statutory authority mandated to administer and receive PAYE, and not against the Respondent after the tax had been lawfully remitted. 32 On the final issue, the Respondent submitted that once PAYE had been remitted to KRA, the money ceased to be Page 8 of 10

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within its hands or control. It argued that an order requiring the Respondent to refund the same amount to the Claimant would effectively require it to pay twice; first by remitting the tax to KRA and again by paying an equivalent amount to the Claimant. Such an outcome, it was submitted, would amount to unjust enrichment. 33 The Respondent maintained that the Claimant’s application was premised on the erroneous assumption that PAYE lawfully deducted and remitted remained recoverable from the employer. It reiterated, relying on Peris Njeri Kinyanjui v Kobo Safaris Limited (Supra), that once lawful deduction and remittance to KRA is demonstrated, the employer cannot be compelled to release the same amount to the employee. 34 The Respondent accordingly urged the Court to find that the deductions were lawful, that the Claimant’s remedy, if any, lay against the relevant tax authority, and that the application was devoid of merit. It therefore prayed that the application be dismissed with costs. 35 I have examined all the averments and submissions of the parties herein. The applicant seeks refund of tax (PAYE already) deducted and remitted. Respectfully, the amount so deducted even if erroneous is no longer in custody of the respondent. I do not think that this court then would be the relevant authority within which the applicant can claim tax remitted to KRA and also in the absence of KRA. 36 The correct forum would in my view be the Tax Tribunal which is then capable of looking into the computation and Page 9 of 10

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determine if there was an overpayment thereof and then make orders appropriately. I find that the application cannot therefore lie and the same is dismissed accordingly. There shall be no order of costs. Dated, Signed and Delivered virtually at Nairobi this 21st Day of September 2026. HELLEN WASILWA JUDGE Page 10 of 10

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