More than 5,000 Kenyan companies have filed a class-action suit against the Kenya Revenue Authority (KRA) over what they describe as an unlawful and abrupt blacklisting from the Value Added Tax (VAT) system, triggering a legal showdown now scheduled for hearing on June 9, 2025.
The case, filed at the High Court in Nairobi, challenges the tax authority’s move to place 5,030 businesses on its VAT “Special Table,” a secretive list that effectively blocks affected firms from filing returns, processing transactions, or accessing input-tax refunds.
The KRA alleges that the firms are part of a “missing trader” fraud network siphoning more than Sh2.5 billion monthly through fake invoicing and non-remittance.
“The KRA has violated our right to fair administrative action by freezing our tax portals without any prior notice or audit findings,” said Peter Karanja, a lead petitioner and managing director of one of the affected SMEs. “This has crippled our businesses overnight.”
Under current regulations, KRA may suspend a VAT certificate after six months of non-compliance or questionable credit claims but petitioners argue that none of those steps were followed. The mass suspension, they say, has paralyzed supply chains and starved businesses of liquidity, especially for small and medium enterprises (SMEs) that rely on timely tax filings to maintain working capital.
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In its defense, the KRA has maintained that the firms were flagged through data analytics and forensic audits, which revealed massive irregularities in credit claims and invoicing.
“We are not targeting law-abiding businesses. This is a fraud control measure aimed at protecting public revenue,” a senior KRA official told Citizen Digital, requesting anonymity due to the sensitivity of the case.
Constitutional lawyer Annette Ndegwa said the outcome of the court battle could set a precedent for how far the taxman can go in using digital systems to enforce compliance.
“If the court rules in favour of the businesses, KRA will have to rework its strategy and adopt more transparent, evidence-based methods. But if the KRA wins, it could open the door for real-time compliance locks to be extended to PAYE, excise, and e-invoicing systems,” lawyer Ndegwa said.
Tax consultants are advising companies to urgently review their input VAT records, vet their suppliers, and prepare for a tighter enforcement regime across all digital tax platforms.
The case will be mentioned in court on June 9.
