Alternative Dispute Resolution (ADR) has become an essential mechanism for resolving tax disputes in Kenya. It offers a more efficient, cost-effective, and amicable way to handle conflicts between taxpayers and the Kenya Revenue Authority (KRA).
This article delves into the ADR framework for tax matters in Kenya, highlighting its benefits, processes, and relevant case law.
Understanding Alternative Dispute Resolution (ADR)
ADR encompasses various methods of resolving disputes outside the traditional court system. In the context of tax matters, ADR primarily involves mediation and negotiation facilitated by a neutral third party.
The goal is to reach a mutually acceptable solution without the need for litigation.
Legal Framework Governing ADR in Tax Matters
The ADR framework for tax disputes in Kenya is governed by several key regulations and acts:
The Constitution of Kenya, 2010: ADR is underpinned by Article 159(2)(c) of the Constitution of Kenya 2010. It states that in exercising judicial authority, the courts and tribunals shall be guided by amongst others the principle that alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanisms shall be promoted.
Tax Procedures Act, 2015: This Act provides the legal basis for ADR in tax disputes. Section 55 of the Act empowers the Commissioner of KRA to resolve disputes through ADR mechanisms.
The Tax Procedures (Settlement of Tax Disputes Out of Court or Tribunal) Regulations: These regulations outline the procedures for initiating and conducting ADR in tax matters. They emphasize that ADR is a voluntary process and can be initiated by either the taxpayer or the Commissioner.
Tax Appeals Tribunal Act, 2013: This Act establishes the Tax Appeals Tribunal (TAT), which handles tax disputes that cannot be resolved through ADR. It also provides for the referral of disputes to ADR at any stage of the proceedings.
Parties Involved in ADR
The key parties involved in the ADR process include the taxpayer, the commissioner, and the facilitator. Each party has a role to play in the process:
Taxpayer: The taxpayer is expected to participate in all discussions fairly and diligently, make full disclosure of material facts relevant to the tax dispute, and attend all scheduled meetings.
Commissioner: The commissioner’s role is to ensure that the process is conducted in a fair and transparent manner.
Facilitator: The facilitator helps to guide the process and ensure that all parties adhere to the agreed timelines.
All parties are expected to uphold and maintain decorum and confidentiality throughout the
The ADR Process in Tax Matters
The ADR process in tax matters involves several key steps:
Initiation
Either the taxpayer or the Commissioner can initiate the ADR process by submitting a request using the prescribed ADR application form. The request can be made at any stage of the dispute, even if the matter is pending before the TAT or a court.
Appointment of Facilitator
Once a dispute is deemed eligible for ADR, the Commissioner appoints a facilitator to mediate the process. The taxpayer may also appoint a co-facilitator at their own cost.
ADR Meetings
The facilitator conducts meetings with both parties to discuss the issues and explore possible solutions. The facilitator remains neutral and guides the parties towards an amicable settlement.
Settlement Agreement
If the parties reach a settlement, they sign an ADR agreement, which is binding and enforceable. The agreement is witnessed by the facilitator and outlines the terms of the settlement.
Implementation
The parties implement the terms of the settlement agreement. If the dispute is not resolved through ADR, it may proceed to the TAT or court for adjudication.
Benefits of ADR in Tax Matters
ADR offers several advantages over traditional litigation:
Cost-Effective
ADR is generally less expensive than litigation, as it reduces legal fees and other associated costs.
Time-Saving
ADR processes are typically faster than court proceedings, allowing for quicker resolution of disputes.
Confidentiality
ADR proceedings are confidential, protecting the privacy of the parties involved.
Flexibility
ADR allows for more flexible solutions tailored to the specific needs of the parties.
Preservation of Relationships
ADR promotes amicable settlements, helping to preserve business relationships between taxpayers and the KRA.
Relevant Case Law
Several cases have highlighted the effectiveness of ADR in resolving tax disputes in Kenya:
Kenya Revenue Authority v. Export Trading Company Limited [2020] eKLR: The Court of Appeal upheld the use of ADR in tax disputes, noting that it provides a more efficient and cost-effective means of resolving conflicts.
Kenya Revenue Authority v. Republic (Ex-Parte Fintel Limited) [2019] eKLR: The court reiterated that ADR should be the first recourse in tax disputes, highlighting its benefits in terms of cost and time savings.
Conclusion
Alternative Dispute Resolution in tax matters offers a viable and effective means of resolving disputes between taxpayers and the Kenya Revenue Authority. By understanding the legal framework, processes, and benefits of ADR, both taxpayers and the KRA can navigate tax disputes more efficiently and amicably.
For more detailed legal advice or representation, please contact our law firm.
To learn more, please refer to the Kenya Revenue Authority Alternative Dispute Resolution Framework.
