Overview of Tax Disputes Resolution Process in Kenya

1.???? Introduction

In life only two things are certain, that is death and taxes. This quote underscores the inevitability of taxes in our lives. Navigating the complexities of tax laws and resolving tax disputes can be a daunting task. This Newsletter provides an overview of the key steps and procedures involved in resolving tax disputes in Kenya.

2.??? Commencement of a tax dispute

KRA tax audits

In Kenya, the Kenya Revenue Authority (the KRA) is a body corporate established under the Kenya Revenue Authority Act as a central body for the assessment and collection of revenue and for the administration and enforcement of the laws relating to the revenue. In fulfillment of its mandate, the KRA has powers to conduct tax audits on the operations of taxpayers. The tax audits carried out by the KRA may either be off-site (desktop audits) or on-site (at taxpayers’ premises).? ?Following the audit process, the KRA raises various audit questions (Audit findings) for response/ resolution by the taxpayers.

Tax assessments/ demands

In the event that the audit queries are not resolved, the KRA issues tax assessments to the taxpayers demanding payment of taxes within a period of thirty (30) days. Tax assessments may take the following forms as provided for under the Tax Procedures Act (the TPA);

a)???? Default assessment- this assessment is issued where a taxpayer has failed to submit a tax return and the KRA issues an assessment based on the information available and to the best of their judgement; and

b)??? Amended assessment- this form of assessment makes alteration or additions from the available information and to the best of the KRA’s judgement.

3.??? Objections to the tax assessments

Where a taxpayer has received a tax assessment and they wish to dispute the assessment, they are required to lodge a notice of objection (the objection) with the Commissioner of Domestic Taxes (the Commissioner) within 30 days from the date of notification of the assessment.

However, the law gives lee way to taxpayers to make an application to the Commissioner seeking extension of the time within which they should lodge an objection. The Commissioner has discretion to allow such an application where the taxpayer was prevented from lodging the notice of objection because of absence from Kenya, sickness or other reasonable cause and where the taxpayer has not unreasonably delayed in lodging the notice of objection.

Validity of objections

The notice of objection lodged by a taxpayer should be valid. A notice of objection is considered as validly lodged, if;

a)???? The objection should state precisely the grounds of objection, the amendments required to be made to correct the decision and the reasons for the amendments;

b)??? The taxpayer should pay the entire amount of tax not in dispute; and

c)???? All the relevant documents relating to the objection have been submitted.

Where the Commissioner is of the view that the notice of objection filed by the taxpayer is not valid, the Commissioner is required to communicate this to the taxpayer for the taxpayer to provide additional information.

?Objection decisions

Upon the taxpayer filing the notice of objection, the notice of objection is referred to the Independent Review of Objections (the IRO) team within the KRA who are tasked with review of tax objections.

The IRO team was established to bring objectivity, independence and enhance efficiency and professionalism in review of objections. ?Upon receipt of an objection, the IRO team seeks submissions from both the taxpayer and the Commissioner regarding the tax assessments for their review in order for them to make an independent decision.

Notably is that the IRO is required to review the objections and issue their objection decision within sixty (60) days either allowing the objection in whole or in part or disallow it. The objection decision should contain a statement of findings on the material facts and the reasons for the decision. Failure to issue the objection decision within 60 days means that the decision has been allowed by operation of the law.

Key to note is that where the tax demand is in respect to a Customs Duties law, the objection is done pursuant to the provisions of the East Africa Community Customs and Management Act (the EACCMA). Under the EACCMA, a taxpayer who wishes to dispute a Customs duties demand is required to file an Application for Review with the Commissioner of Customs and Boarder Control, who upon reviewing the Application, ought to give their decision within thirty (30) days.

4.??? Appeals to the Tax Appeals Tribunal

A person who is dissatisfied with the Objection decision (domestic taxes) or an Application for Review Decision (for Customs) has a recourse to file an appeal to the Tax Appeals Tribunal (the Tribunal).

An Appeal to the Tribunal commences by issuing a notice of appeal within thirty days from the date of receipt of the objection decision and paying a non-refundable filing fee of KES 20,000/=. Thereafter, the party appealing to the Tribunal has fourteen (14) days to file the substantive appeal documents (i.e statement of facts, memorandum of appeal and other supporting documentation). In limited circumstances (eg where a Party is sick, absent from Kenya or other reasonable cause), the Tribunal may also allow a Party to the dispute to file an Appeal out of time.

On the other hand, the Respondent has thirty days from the date of being served the substantive appeal documents to file their Response. Thereafter, the matter is set for mentions and hearing by the Tribunal. Hearings at the Tribunal may take the form of viva voche or through written submissions depending on the circumstances of the case.

At any time during the proceedings at the Tribunal, the Tribunal may grant the Parties opportunity to resolve the matter out of the Tribunal under the Alternative Dispute Resolution (the ADR) Framework. In the event that Parties reach an agreement under the ADR framework, the agreement is adopted by way of consent at the Tribunal.

Upon closure of the hearing stage, the Tribunal is expected to issue its Judgement in writing giving reasons for its decisions. A judgement by the Tribunal is enforceable as a decision of any other Court.

5.??? Appeals to the Courts of Law (High Court, Court of Appeal & Supreme Court)

In the event that a Party is dissatisfied with the decision of the Tribunal, the next available recourse is filing an appeal at the High Court of Kenya. An appeal to the High Court commences by filing a Memorandum of Appeal within 30 days of receipt of the decision by the Tribunal.

The Memorandum of Appeal should be signed by the appellant, include the Appellant’s address, set out the grounds of appeal, have an index of all documents and be accompanied by a copy of the decision by the Tribunal. On the other hand, the Respondent is required to file their Statement of Facts within thirty (30) days of service of the Memorandum of Appeal. Thereafter, the matter is set for hearing and determination.

In the event that a taxpayer or the Commissioner is dissatisfied with the decision of the High Court, they may lodge an appeal within (fourteen) 14 days to the Court of Appeal for determination.

The question that arises is, is the Court of Appeal the final Court that may determine a tax matter? Certainly not, in exceptional circumstances and pursuant to Article 163 of the Constitution, the Court of Appeal may certify that a tax matter is of general public importance and should thus be determined by the Supreme Court.

6.???? Resolving tax matters out of Court under the Alternative Dispute Resolution Framework.

As noted above, the tax legislation provides for the lee way for the taxpayer and the Commissioner, at any time, during appeal at the Tribunal or the Courts of Law to pursue dispute resolution under the Alternative Dispute Resolution Framework.

The ADR framework is a voluntary, participatory and facilitated discussion over a tax dispute between a taxpayer and the Commissioner. It is in the form of facilitated mediation and not arbitration as envisaged in the Arbitration Act, (Chapter 49 Laws of Kenya), as the facilitator has no power to impose any decisions regarding the outcome of the tax dispute. Instead, the parties are facilitated to find a solution to the dispute. The ADR discussions culminate in an ADR agreement which is executed by both Parties and the Facilitator and forms the basis of the Tribunal’s or Court Consent which is adopted by the Tribunal or the Court. Once the TAT Consent is signed, the legal responsibilities and liabilities of the parties include ensuring that the TAT consent is enforced in line with ?the agreed terms failure to which it will constitute breach of the ADR agreement and either party may seek the appropriate orders from the court to uphold the settlement terms.

(Caveat- This newsletter is provided for general information purposes only and should not be construed as Legal or Tax advice. Before taking any action based on the information in this newsletter, please consult with a qualified Legal and Tax professional.)