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No employer-employee relationship? No PAYE!

China Road & Bridge Corporation v Commissioner of Domestic Taxes [2021] eKLR

The High Court Commercial and Tax Division delivered a Judgement on the 5th February 2021 where it declared, in the absence of an Employer-Employee relationship, the person paying for services rendered is not subject to (Pay as you earn) PAYE.

Brief Summary

China Road & Bridge Corporation (CRBC) entered into a construction contract with Kenya Railways Corporation (Kenya Railways) for the construction of the standard gauge railways (SGR) from Mombasa to Nairobi.The management and administration of the police officers providing security services to the SGR was fully carried out by the National Police Service (NPS) through the Kenya Railways Police Unit. The CRBC's role was limited to the payment of the allowances of assigned officers as determined by the NPS while their salaries were paid by and received from the NPS.


In its reasoning, the court held that it is not in dispute that the allowances paid to the Police Officers amount to income under section 3(1)and (2) and section 5(2) of the ITA upon which income tax is chargeable. In summary, under section 3(2)(a)(ii), the allowances paid to the police officers amount to a gain from, “an employment or services rendered” and under section 5(2)(a) it is an amount, “received in respect of employment or services rendered”

The court however ruled that since there was no employer-employee relationship between the CRBC & the Police officers providing security for the construction of the SGR, as per section 37 (1) of the ITA, CRBC was not subject to PAYE.

The court emphasised on the strict principles of interpretation of tax statutes .The court held the language of Section 37(1) is clear as it expressly defines, “An employer paying emoluments to an employee”. It would therefore be improper to imply or read into this provision any other relationship other than that of an employer and employee, to do so violates the clear words of the statute. It also violates the principles of interpretation of tax statutes.

In the absence of an employer-employee relationship, a person paying for services rendered is under no obligation to deduct and remit PAYE to the taxman.

For advise on tax matters contact Kimberly Kwesiga at or



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