Validity of a Tax Objection Notice

Case Study: Mukasi Builders Limited Vs KRA

KRA conducted a?compliance??assessment??on?MBL's VAT?returns??and??annual??income??tax.??The?affected months on?VAT returns?were?December?2015.?December?2016.?December 2018, December?2019 and June?2020.?For the?annual??income?tax?returns, the?periods??affected??were??years?2015.??2016,?2017?and?2018

On?13th??October?2020,??KRA??communicated?its findings?to?MBL??indicating??that??taxable?? income??as?per??payment??from??Embu County?in June?2020?was?not?declared,??IT2C vs VAT declaration??variances were?observed?and that?MBL?had been claiming capital allowances.

KRA??asked?MBL??to?review??the??returns??&??submit supporting??documents.?MBL?was? also?advised??to?amend?the returns,make??the??necessary???payments??and??provide??supporting documents within??14 days.

On??2nd???December???2020,???KRA???issued??a??notice???of assessment and??demand??for tax?of?Kshs. 6.4m??for?VAT?and Kshs. 23.6mfor??income??tax,?on?grounds??that?MBL "failed to??respond??to??the??issues??raised??by??either??providing??the requested documents??or?amending??the??affected??returns".??The??letter also?advised??MBL that??in?case?it disputed?the??assessment,??it had?a right?to?object??for the?assessment??in accordance??with??Section??51 of?the?Tax?Procedures?Act,?2015.

On??20th?January?2021,??KRA??sent?a?notice??for?demand??of tax?in arrears??of?Kshs.?55.9m,??for?the?period??December??2015 to?October?2020.??MBL was?given??seven?days?within??which to?pay.

MBL objected??to?the?assessment?through??a letter?received?by the Respondent??on 29th?January?2021.

The notice?of??objection??was rejected?on?the grounds?that?it was?not?validly lodged. The rejection of the?notice?of objection??was the genesis of this Appeal

MBL appealed to the TAT.

??The??Appeal??was??premised??on the??following??grounds??as?stated??in?the Memorandum?of Appeal?filed with?the Tribunal?on?11th?June?2021;-?

• The??dispute???to??be??adequately???addressed???through??an??Alternative Dispute??Resolution???(ADR).
• KRA??to??review??their?additional???assessments??or?start?a new assessment.
• MBL???as?taxpayer??be?given??fair?tax?administration??and??tax (if any),??resulting??from??this?case.
• KRA???to??lift??the???bank???restrictions????to??allow???MBL???to resume??business??as case?is?being??solved.

KRA responded that:

• MBL??lodged??an?invalid??objection??notice??that??did??not meet the??threshold??specified??under??Section??51(3)??of?the??Tax Procedures?Act.
• MBL failed??to precisely??state??the grounds??of objection,???the amendments required??to??be??made???to??correct???the??decision,???and the reasons???for??the??amendments???contrary???to Section51 (3) (a) of the TPA, 2015.
• MBL failed??to??discharge???his evidential???burden???of??proof under??Section??107 (1)??of the??Evidence??Act in demonstrating??that??the assessment by??the???Respondent???was??in??any??reasonable????manner, incorrect or excessive.

In its ruling on 09/09/2022, the Tax Appeal Tribunal observed that:

• The?failure?to?submit?documents??is?in contravention??to Section?51 (3)?of the?Tax?Procedures

A notice??of objection??shall be treated??as validly??lodged by a taxpayer?under??subsection??(2)?if--

(a) the?notice?of?objection?states??precisely?the?grounds of?objection,??the?amendments?required?to?be?made to correct?the decision, end the reasons for the amendments;(b)in?relation?to?an?objection??to?an?assessment,??the taxpayer??has?paid??the?entire??amount??of?tax?due under??the?'assessment that??is not??in?dispute??or?has applied??for?an extension?of?time?to?pay??for?the?tax not??in dispute??under?section??33(1);??and…..

• KRA has statutory??powers?to?request for documents???and??information???from??a??taxpayer???for??purposes???of determining the?taxpayer's??tax?liability.??This is?provided??under?Section?59 (1)?(a) of the Tax Procedures?Act which?stipulates?that:-

"For purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to the?tax law,?the Commissioner or an authorized officer may require any person, by notice in writing, to -(a)produce for examination, at such time and place as may be specified in the notice,?any documents (including in electronic format) that are in the person's custody or. under the person's control relating to the tax liability of any person;"

• MBL did not pay the tax not in dispute before submitting the objection as required by the law.

Section?51(3)?(b) of the?Tax?Procedures??Act, clearly?states?that?a notice?of objection shall be treated??as validly?lodged?by a taxpayer??under?subsection?

(2)?if-?"In relation to an objection assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1);."

Having?found?that?the?objection??was?not?validly?lodged,??the?Tribunal?did not??delve??into?the?other??issue?that??fell?for?its?determination?as?it?was rendered moot