The tax law in Kenya envisages four approaches and levels of resolving tax disputes, namely, the administrative decision, quasi-judicial process involving tax Appeals Tribunal (TAT), formal judicial process involving High Court as court of first instance or appeal from the Tribunal and appeal to Court of Appeal and alternative dispute resolution on agreement of parties at administrative level or as an out of tribunal/court dispute settlement procedure. The relevant laws are the Tax Procedures Act, 2015, Tax Appeals Tribunal Act, 2013, and the relevant Tax Laws in Kenya. Parties can opt for Alternative Dispute Resolution of tax disputes at any level of the dispute under KRA Alternative Dispute Resolution (ADR) Framework.
Tax Objection Decision
The Tax Procedures Act requires that a taxpayer who wishes to dispute a tax decision at first instance lodges an objection with Commissioner against the tax decision within 30 days of notification under section 51 before proceeding to take any steps envisaged under any other written law. Any such notice of objection must state the precise grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments. Further, the tax payer must confirm payment of the entire amount of tax due under the assessment that is not in dispute. If the Commissioner concludes that these conditions have not been met, she is to immediately notify the taxpayer in writing that the objection has not been validly lodged. The Commissioner has sixty (60) days to make an objection decision from the date the taxpayer lodged the notice of the objection failing which the objection is considered to be allowed.
The taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection. The Commissioner has discretion to allow an application for the extension of time to file a notice of objection if the taxpayer was prevented from lodging the notice of objection within the prescribed period because of an absence from Kenya, sickness or other reasonable cause and the taxpayer did not unreasonably delay in lodging the notice of objection.
Once a notice of objection has been validly lodged within time, the Commissioner is bound to consider the objection and decide either to allow the objection in whole or in part, or disallow it. The Commissioner’s decision is referred to as an “objection decision” and includes a statement of findings on the material facts and the reasons for the decision. In any case, the Commissioner is required to notify in writing the taxpayer of the objection decision and take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment.
Tax Appeals Tribunal
Section 52 of the Tax Procedures Act gives a person who is dissatisfied with an appealable decision the discretion to appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013. As per the Tax Appeals Tribunal Act, whether or not a decision is appealable to the tax tribunal depends on the relevant tax law on case to case basis. In turn, a person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may upon giving notice in writing to the Commissioner, appeal to the Tribunal. However, a notice of appeal to the Tribunal relating to an assessment is only valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice. Further, the person appealing is required to pay a non-refundable fee of twenty thousand shillings to the tribunal.
As a matter of fact, while the proceedings of the Tribunal are of a judicial nature, the Civil Procedure rules have been specifically excluded. The provisions of the Civil Procedure Act (Cap. 21) are expressly excluded from application to the proceedings of the Tribunal meaning aspects such as Court-Annexed Mediation are not allowable. However, the Act allows parties to an appeal before the Tribunal to apply, in writing, to the Tribunal to settle the dispute out of the Tribunal. In such a case, the time taken to resolve or conclude the settlement out of the Tribunal is to be excluded when calculating the period contemplated for resolution of Appeals under the Act. In particular, the Tribunal is bound to hear and determine an appeal within ninety days from the date the appeal is filed with the Tribunal.
Appeal to the High Court
If a party to proceedings before the Tribunal is dissatisfied with the decision of the Tribunal in relation to an appealable decision may, they are entitled within thirty days of being notified of the decision or within such further period as the High Court may allow, to appeal the decision to the High Court in accordance with the provisions of the Tax Appeals Tribunal Act, 2013. The High Court is to hear such appeals in accordance with rules to be issued by the Chief Justice.
Essentially, appeal to the High Court marks the formal start of tax litigation in Kenya and tax cases usually take three forms, namely, appeals from decisions of the Tax Appeals Tribunal (TAT), judicial review cases challenging abuse of process or other administrative excesses by the Kenya Revenue Authority (KRA) and constitution petitions by aggrieved tax payer(s) alleging infringement of constitutional rights. In an appeal by a taxpayer to the Tribunal, High Court (or Court of Appeal) in relation to an appealable decision, the taxpayer is only permitted to rely on the grounds stated in the objection to which the decision relates unless the Tribunal or Court allows the person to add new grounds.
Appeals to Court of Appeal
In event any party to tax litigation proceedings before the High Court is dissatisfied with the decision of the High Court in relation to an appealable decision, they may in thirty (30) days of being notified of the decision or within such further period as the Court of Appeal may allow, appeal the decision to the Court of Appeal. Both KRA and tax payers have resorted to appeals to Court of Appeal to challenge several decisions of the High Court. The Tax Procedures Act is clear that any appeal to the decision of the Tax Tribunal to the High Court or to decision of the High Court to the Court of Appeal shall be on a question of law only.
Out of Court Settlement
The law provides that where a Court or the Tribunal permits the parties to settle a dispute out of Court or the Tribunal, as the case may be, the parties are to make the settlement within ninety days from the date the Court or the Tribunal permits the settlement. If the parties fail to settle the dispute within that period, the dispute is to be referred back to the Court or the Tribunal that permitted the settlement. This provision of the Tax Procedures Act in allowing for settlement of tax disputes vide Alternative Dispute Resolution along with Article 159 of the Constitution are the basis for use of ADR in tax disputes resolution in Kenya. Indeed, the KRA ADR Framework allows parties to refer disputes to Alternative Dispute Resolution before or in lieu of referring them to the Tribunal or appealing to the Court unless the dispute is not amenable to ADR. ( (The Lawyer)
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