Under the Tax Procedures Act, 2015 (TPA), a taxpayer may apply to KRA for a private ruling. A private ruling is a written determination that explains how tax law applies to a specific transaction or set of facts.
To obtain a valid ruling, the taxpayer must submit a written application and provide full and accurate disclosure of all material facts. The application must clearly describe the transaction and the legal question involved.
Once KRA issues the ruling, and the facts remain as disclosed, the ruling becomes binding on KRA for the transactions covered. This gives businesses clarity when planning investments, pricing, VAT treatment, or supply-chain structures. For SMEs and MSMEs, this certainty is critical for cash-flow planning and compliance.
When Does a Private Ruling Become Binding on KRA?
A private ruling becomes binding when KRA issues it after receiving full disclosure from the taxpayer. KRA must then apply that ruling consistently, as long as the taxpayer acts within the facts described in the application.
This binding effect prevents KRA from changing its interpretation later and applying that change retrospectively to the taxpayer’s disadvantage. The ruling therefore protects taxpayers from unexpected reassessments for transactions already undertaken.
What the Tax Appeals Tribunal Recently Confirmed
In a landmark decision, including Kenya Nut Company Limited v Commissioner of Domestic Taxes (Appeal 547 of 2021), the Tax Appeals Tribunal reaffirmed the binding nature of private rulings.
The Tribunal confirmed that the private ruling in question met the requirements of Section 65 of the TPA. The taxpayer had applied in writing, disclosed all material facts, and clearly set out the legal issue. The taxpayer also acted based on the ruling, including classifying certain products as VAT-exempt.
KRA later attempted to revoke the ruling and reclassify the products retrospectively as standard-rated. The Tribunal held that this action was unlawful. Once KRA issues a valid private ruling, it cannot arbitrarily revoke it or penalize the taxpayer for past transactions, provided the facts remain materially the same.
This decision provides strong protection for taxpayers who rely on private rulings in good faith.
Why This Ruling Matters for SMEs and MSMEs
For SMEs operating in sectors with tax ambiguity, this clarification is significant. Many small businesses depend on advance certainty to plan operations and manage costs.
Key benefits include:
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Protection from retrospective tax liabilities
A valid private ruling shields businesses from unexpected backdated assessments. -
Greater tax certainty
Businesses can plan pricing, imports, exports, VAT treatment, and cash flow with confidence. -
Reduced compliance risk
Clear guidance lowers exposure to sudden shifts in KRA’s interpretation. -
Cost-effective compliance
SMEs avoid over-provisioning for VAT or tax due to uncertainty. -
Stronger dispute position
A private ruling provides solid legal support if disputes arise before the Tribunal or courts.
In practice, a private ruling can become a valuable business asset.
Practical Steps SMEs Should Take Now
Businesses should consider applying for a private ruling if they deal with complex or unclear tax issues. This applies especially to:
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Unusual or non-standard products, including mixed-use or hybrid goods
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Import and export businesses with VAT, customs, or tariff complexity
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New or digital business models
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Transactions where tax classification affects cash flow or refunds
To proceed effectively:
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Identify transactions that fall into tax “grey areas.”
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Prepare a detailed written application under Section 65 of the TPA.
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Disclose all material facts, pricing, documents, and supply-chain flows.
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Follow the ruling strictly once KRA issues it.
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Keep accurate records to avoid material deviations or nondisclosure.
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Archive existing rulings as part of your tax governance framework.
Limits of Private Rulings Under Kenyan Law
While private rulings are powerful, they have clear limits. A private ruling binds KRA but does not bind the taxpayer. A taxpayer may choose not to follow it, although doing so removes certainty.
Private rulings cannot override published public rulings or statutory law. In addition, if a taxpayer provides misleading or incomplete information, KRA may still challenge the ruling.
Businesses must therefore seek and use private rulings responsibly.
How Aura & Co CPA Helps SMEs Use Private Rulings Strategically
Aura & Co CPA treats private rulings as proactive tax planning tools rather than last-resort solutions.
Our support includes:
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Private ruling readiness assessments to identify ambiguous tax issues
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Application drafting and submission with full factual disclosure
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Post-ruling compliance structuring to stay within the ruling’s scope
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Risk management and dispute support based on Tribunal precedent
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Periodic reviews to assess whether fresh rulings are required
This approach helps SMEs integrate private rulings into long-term tax governance and strategic planning.
Tax Tuesday Tip
If your business deals with unique products, imports, exports, or mixed-use transactions, identify one unclear tax issue this week. Discuss it with your accountant and ask whether a private ruling would provide lasting protection.
If the answer is yes, consider applying. The cost and effort are small compared to the stability and savings a private ruling can deliver. Visit our website at https://aura-cpa.com/, email us at audit@aura-cpa.com, Call us on 0794555000 | 0769111000 or visit us at Haven Court along Waiyaki way, Nairobi for clarification.