The National Bank of Kenya claimed to offset the corporate tax liability against tax credits arising from foreign taxes under credit under special arrangement in section 42 of the Income Tax Act.
The bank relied on section 47, tax Procedures Act which deal with refund of overpaid taxes. The section has a discretionary word “may” which gives taxpayers freedom to launch refund claim or not. In practice taxpayers would automatically offset tax overpayments within the same tax head gave rise to a legitimate expectation. KRA on their side argued that refunds foreign tax credits could not be offset against annual income returns, Further the law allows KRA to audit the refund claims to determine their validity.
TAT concluded that offsetting a tax due from an overpayment of tax is not automatic and that the taxpayer must apply under Section 47 of the TPA for validation.
