By Mukamba & Company Advocates

Tax disputes with the Kenya Revenue Authority (KRA) can be daunting, but understanding your rights and the legal framework can empower you to resolve conflicts efficiently.

This article outlines Kenya’s tax dispute resolution process, practical strategies for negotiation, and proactive steps to minimize risks, enriched with real-world case studies from Kenyan courts and tribunals.

Understanding The Legal Framework

Kenya’s tax dispute resolution system is anchored in three key pillars:

1. The Constitution of Kenya (2010): Article 47 guarantees the right to fair administrative action, requiring the KRA to act procedurally fair, reasonably, and transparently.
2. Tax Procedures Act (TPA), 2015: Governs tax assessments, objections, and appeals (Sections 51–54).
3. Tax Appeals Tribunal Act (2013): Establishes the Tax Appeals Tribunal (TAT) to hear disputes unresolved by the KRA.

Key Case Law

1. Republic v. Commissioner of Domestic Taxes & Another Ex-Parte ABC Bank Ltd (2018)
   • Issue: The KRA raised a tax assessment without providing the bank adequate time to respond during an audit.
   • Outcome: The High Court quashed the assessment, emphasizing that procedural fairness under Article 47 is mandatory.
   • Takeaway: Taxpayers can challenge assessments if the KRA violates due process.
2. Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR
   • Issue: The KRA sought to recover taxes for a 7-year period, exceeding the statutory 5-year limit under TPA Section 31(7).
   • Outcome: The High Court ruled in favor of the taxpayer, limiting audits to 5 years unless fraud is proven.
   • Takeaway: Know statutory timelines to contest outdated assessments.

The Tax Dispute Resolution Process: Step-by-step

1. Objection to the Commissioner
   • File a written objection within 30 days of an assessment (TPA, Section 51).
   • Provide supporting documents (e.g., invoices, bank statements).
   • The KRA must respond within 60 days; failure to do so deems the objection allowed.
2. Appeal to the Tax Appeals Tribunal (TAT)
   • If dissatisfied, appeal to the TAT within 30 days of the KRA’s decision (TAT Act, Section 13(1)).
   • The TAT must resolve the matter within 90 days.
3. High Court Appeal
   • Further appeals lie with the High Court under Article 165(5) of the Constitution.

Practical Strategies for Negotiating with the KRA

• Pre-Dispute Engagement: Proactively engage the KRA during audits. Clarify ambiguities and submit requested documents promptly.
• Negotiation Tactics:
  • Be transparent but avoid volunteering unnecessary information.
  • Use expert representation (e.g., tax advocates or accountants) to strengthen your case.

Case Example:

• Bidco Africa Ltd vs. Commissioner of Domestic Taxes [2020]
  • Issue: KRA imposed a KES 1.2 billion transfer pricing adjustment.
  • Outcome: The TAT ruled in favor of Bidco, noting the KRA failed to prove the adjustment was inconsistent with arm’s-length principles.
  • Takeaway: Robust transfer pricing documentation is critical for multinationals.

ADR Mechanisms:

The TPA (Sections 41–42) encourages Alternative Dispute Resolution (ADR). The KRA’s ADR framework (launched in 2020) allows mediation or arbitration, often resolving disputes faster than litigation.

Case Example:

• Osho Chemicals Ltd vs. KRA (2022)
  • Issue: Dispute over KES 75 million VAT refund delays.
  • Outcome: ADR resolved the matter in 45 days, with KRA releasing 80% of the refund.

Record-keeping: Your First Line Of Defence

Under TPA Section 59, taxpayers must retain records for five years. Tips:

• Digitize invoices, receipts, and correspondence.
• Reconcile accounts monthly to catch discrepancies early.

Case Example:

• Unilever Kenya Limited vs. Commissioner of Domestic Taxes [2019]
  • Issue: KRA disallowed deductions for management fees, alleging insufficient documentation.
  • Outcome: The TAT ruled in favor of Unilever, which provided contracts and payment trails.
  • Takeaway: Meticulous records protect against disallowances.

Common Tax Disputes & Case Precedents

1. VAT Disputes
   • Bamburi Cement Ltd vs. Commissioner of Domestic Taxes [2018]
     • Issue: KRA denied VAT exemptions on imported machinery.
     • Outcome: The High Court upheld Bamburi’s claim, citing the VAT Act’s exemption for manufacturing equipment.
2. Income Tax Adjustments
   • Caltex Oil Kenya Ltd vs. KRA [2017]
     • Issue: KRA imposed penalties for alleged under-declaration of income.
     • Outcome: The High Court overturned penalties, citing lack of evidence.

Avoiding Disputes: Proactive Compliance

1. Conduct regular internal audits.
2. Seek advance rulings from the KRA on complex transactions (TPA, Section 42).

Case Example:

• Safaricom PLC vs. Commissioner of Domestic Taxes (2021)
  • Issue: Dispute over deductibility of spectrum fees.
  • Outcome: Safaricom’s pre-emptive engagement with KRA led to a negotiated settlement.

CONCLUSION

Resolving tax disputes requires a blend of legal knowledge, strategic negotiation, and meticulous record-keeping. By leveraging precedents like Bidco Africa and Unilever Kenya, taxpayers can navigate conflicts confidently.

Kenya’s evolving ADR mechanisms and judicial precedents underscore the importance of procedural compliance and documentation.

Need Assistance?

Mukamba & Company Advocates specializes in tax dispute resolution, from objection drafting to Tribunal representation. Contact us at info@mukambalaw.com for tailored guidance.

Disclaimer: This article is for informational purposes only and does not constitute legal advice.

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Author: Eugene

Mukamba Managing Partner

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