Navigating the tax landscape in Kenya can be complex, especially when disputes arise between taxpayers and the Kenya Revenue Authority (KRA). One critical avenue for resolving such disputes is the Tax Appeals Tribunal (TAT).
This article provides an in-depth look at the TAT, including its functions, structure, recent relevant cases, and key considerations for taxpayers seeking redress.
What is the Tax Appeals Tribunal?
The Tax Appeals Tribunal is an independent quasi-judicial body established under the Tax Appeals Tribunal Act, 2013. Its primary purpose is to hear and determine appeals from decisions made by the KRA regarding various tax matters.
The TAT serves as a crucial forum for taxpayers seeking to contest assessments, penalties, and other tax-related decisions.
Structure of the Tax Appeals Tribunal
The TAT consists of a Chairperson and several other members, who are appointed based on their expertise in tax law, finance, or accounting. The Tribunal's structure ensures that appeals are reviewed by individuals with relevant qualifications and experience, which is vital for fair adjudication.
Key Features of the TAT
Hearing and Determining Appeals: The TAT hears appeals on various tax matters, including income tax, value-added tax (VAT), customs and excise duties, and other taxes administered by the KRA.
Providing Fair and Impartial Judgments: The tribunal ensures that all parties receive a fair hearing and that decisions are made impartially based on the evidence presented.
Promoting Tax Compliance: By providing a platform for dispute resolution, the TAT encourages voluntary compliance with tax laws and regulations.
Expertise: Members are selected for their expertise in taxation and law, enhancing the quality of decisions.
Accessibility: The TAT is designed to be accessible to taxpayers, providing a straightforward process for lodging appeals.
Jurisdiction of the Tax Appeals Tribunal
The TAT's jurisdiction covers a wide array of tax issues, including but not limited to:
Income Tax: Appeals against income tax assessments under the Income Tax Act.
Value Added Tax (VAT): Disputes over VAT assessments and refunds under the Value Added Tax Act.
Excise Duty: Appeals related to excise duty assessments under the Excise Duty Act.
Customs Duty: Challenges against customs assessments and penalties under the East Africa Community Customs Management Act.
The Appeals Process
The process of appealing to the TAT involves several steps:
Filing an Appeal: A taxpayer who disagrees with a decision made by the KRA must file a notice of appeal with the TAT within 30 days of receiving the decision.
Submission of Documents: The appellant must submit all relevant documents and evidence to support their case. This includes the original assessment, objection decision, and any other pertinent records.
Hearing: The TAT schedules a hearing where both the appellant and the KRA present their arguments. The tribunal may also call for additional evidence or expert testimony if necessary.
Decision: After considering all the evidence, the TAT issues a written decision. The decision can either uphold, vary, or set aside the KRA’s assessment.
Importance of the Tax Appeals Tribunal
The TAT plays a vital role in upholding taxpayers' rights and ensuring fair treatment in tax matters. Its significance can be summarized as follows:
Protection of Taxpayer Rights: The Tribunal serves as a guardian of taxpayer rights, ensuring that the KRA adheres to legal standards.
Promoting Compliance: By providing a fair dispute resolution mechanism, the TAT encourages voluntary compliance among taxpayers.
Legal Precedents: The decisions made by the TAT contribute to the development of tax law in Kenya, providing guidance for future cases.
Key Considerations for Taxpayers
Taxpayers considering an appeal to the TAT should keep the following in mind:
Timeliness: It is crucial to file the appeal within the stipulated time frame to avoid dismissal on procedural grounds.
Documentation: Comprehensive and accurate documentation is essential to support the appeal. This includes financial records, correspondence with the KRA, and any other relevant evidence.
Legal Representation: Engaging a qualified tax lawyer can significantly enhance the chances of a successful appeal. Legal professionals can provide expert advice and representation throughout the process.
Recent and Relevant Case Law from the Tax Appeals Tribunal in Kenya
Imco Holdings Limited, a company engaged in trading and logistics, appealed against a tax assessment issued by the Commissioner of Domestic Taxes (KRA). The KRA had determined that Imco Holdings failed to pay the correct amount of value-added tax (VAT) for several financial periods.
As a result, the KRA imposed a substantial tax liability, including penalties and interest for the alleged underpayment, prompting the company to contest the assessment before the Tax Appeals Tribunal.
Issues for Determination
The Tribunal needed to address several critical issues:
Whether the VAT assessment issued by the KRA was accurate and justified.
Whether the KRA followed proper procedures during the assessment process.
The legitimacy of the penalties imposed for the alleged non-compliance.
Decision of the Tribunal
The Tax Appeals Tribunal ruled in favor of Imco Holdings Limited, concluding that:
The KRA’s assessment was flawed, as it relied on inadequate documentation and failed to consider Imco Holdings' submitted records. The Tribunal emphasized the importance of accurate and transparent record-keeping by both taxpayers and the KRA.
The Tribunal found that the KRA had not adhered to proper procedural requirements in conducting the assessment, undermining the credibility of its findings. It highlighted that due process must be observed to ensure fairness in tax administration.
Regarding the penalties, the Tribunal determined they were unjustified, given the lack of conclusive evidence of wrongdoing on the part of Imco Holdings.
The judgement in Imco Holdings Limited v Commissioner of Domestic Taxes highlights the critical importance of thorough evidence and adherence to procedural fairness in tax assessments. The Tribunal’s decision reaffirms the rights of taxpayers to challenge unwarranted tax claims and emphasizes the necessity for the KRA to conduct assessments in a fair and transparent manner. This case serves as a significant precedent in ensuring that tax authorities uphold the principles of justice and equity in their dealings with taxpayers.
Novixa International Limited, a company involved in the importation and manufacture of fertilizer, was subjected to a Post Clearance Audit (PCA) by the Commissioner of Customs and Border Control. The audit covered the period from January 2018 to December 2019.
Following the audit, the Commissioner issued a tax demand of Kshs. 2,945,740.00 on March 28, 2023, citing short-levied taxes. Novixa International filed an objection, which was reviewed and dismissed by the Commissioner, confirming the tax demand. Dissatisfied with this outcome, Novixa International appealed to the Tax Appeal Tribunal.
Issues for Determination
The Tribunal identified several key issues for determination:
Whether the Commissioner erred in law and fact by defending the Doctrine of Legitimate Expectation in administrative law.
Whether the Commissioner misinterpreted the East Africa Customs Common External Tariff (EACCET) 2017, including the Explanatory Notes, the Heading and subheadings, and the General Interpretative Rules (GIR).
Whether the tax demand of Kshs. 2,945,740.00 was lawful and justified under the relevant tax laws and the Constitution of Kenya.
Decision of the Tribunal
The Tribunal dismissed the appeal, upholding the tax demand issued by the Commissioner. The Tribunal found that:
The Commissioner acted within the law in defending the Doctrine of Legitimate Expectation.
The interpretation of the EACCET 2017 by the Commissioner was correct and in accordance with the applicable rules and guidelines.
The tax demand was lawful and did not violate any constitutional provisions.
The Tribunal’s decision in Novixa International Limited v Commissioner of Customs and Border Control to dismiss the appeal and uphold the tax demand emphasizes the importance of adhering to established tax laws and guidelines. It also highlights the necessity for companies to ensure compliance with tax regulations to avoid disputes and penalties.
Solargen Technologies Limited, a company specializing in energy, water, and irrigation solutions, was subjected to a tax assessment by the Commissioner of Customs and Border Control. The assessment was based on the alleged incorrect tariff classification of solar water heaters incorporating electrical heating elements.
The Commissioner classified these under tariff code 8516.10.00, which attracts both import duty and VAT, instead of 8419.19.00, which attracts only VAT. Following a desk audit, the Commissioner issued a demand notice on November 25, 2021, for Kshs. 8,178,712.70.
Solargen Technologies did not respond within the required 30 days, leading to enforcement actions. The company later applied for a review through its tax agent.
Issues for Determination
The Tribunal identified several key issues for determination:
Whether the Commissioner correctly classified the solar water heaters under tariff code 8516.10.00.
Whether the demand notice issued by the Commissioner was lawful and justified.
Whether the Commissioner followed the correct procedures in issuing the tax demand and subsequent enforcement actions.
Whether Solargen Technologies was given a fair opportunity to respond to the tax assessment.
Decision of the Tribunal
The Tribunal found in favor of Solargen Technologies Limited:
The Tribunal determined that the correct tariff classification for the solar water heaters was 8419.19.00, which attracts only VAT.
The demand notice issued by the Commissioner was found to be based on an incorrect tariff classification and was therefore not justified.
The Tribunal noted procedural lapses in the issuance of the tax demand and enforcement actions, emphasizing the need for adherence to proper procedures.
Solargen Technologies was not given a fair opportunity to respond to the tax assessment within the stipulated time frame.
The Tribunal in Solargen Technologies Limited v Commissioner of Customs and Border Control allowed the appeal, setting aside the tax demand of Kshs. 8,178,712.70. This case highlights the importance of accurate tariff classification and procedural fairness in tax assessments. It also underscores the necessity for tax authorities to provide taxpayers with adequate opportunities to respond to assessments.
Monarch Insurance Company Limited, the appellant, contested a demand by the Commissioner of Customs & Border Control for payment of Kshs. 27,185,329.00. This amount was related to an unaccounted security bond for Alicia Freighters Limited, for which Monarch Insurance was the guarantor.
The dispute arose after the Commissioner conducted an audit and found discrepancies in the Simba System, leading to the demand for the outstanding amount.
Issues for Determination
The Tax Appeal Tribunal identified several key issues for determination:
Whether the Commissioner erred in law by failing to communicate reasons for the review decision.
Whether the Commissioner was justified in enforcing expired customs security bonds.
Whether the Commissioner should have pursued the principal debtor before demanding payment from the appellant.
Whether the demand for Kshs. 27,185,329.00 was reasonable and lawful.
Whether the Commissioner’s actions breached the appellant’s legitimate expectations and constitutional rights.
Decision of the Tribunal
The Tribunal, chaired by E.N Wafula and comprising Jephthah Njagi, E Ng’ang’a, and G Ogaga, delivered its judgment on September 9, 2024. The Tribunal found that:
The Commissioner had followed the correct legal procedures and was justified in demanding the outstanding amount from the appellant.
The appellant failed to provide sufficient evidence to challenge the demand.
The enforcement of the expired customs security bonds was lawful under the circumstances.
The Commissioner’s actions did not breach the appellant’s legitimate expectations or constitutional rights.
As a result, the Tribunal dismissed the appeal by Monarch Insurance Company Limited, upholding the demand for payment.
The case of Monarch Insurance Company Limited v Commissioner of Customs & Border Control highlights the importance of compliance with customs regulations and the responsibilities of guarantors in customs transactions. The Tribunal’s decision reinforces the principle that guarantors can be held liable for outstanding amounts even if the principal debtor defaults.
This judgment serves as a reminder for companies to ensure thorough documentation and adherence to legal requirements to avoid similar disputes.
Cummins Car & General Limited (the Appellant) is a company incorporated in Kenya in 2015, primarily engaged in the sale of power generators, commercial engines, and related spare parts. These products are sourced from CMI Africa affiliates in India and the UK. The Commissioner of Legal Services and Board Coordination (the Respondent) issued an income tax assessment of Kshs. 119,328,977.00 for the 2017 year of income.
The Appellant objected to this assessment, but the Respondent only partially allowed the objection. Dissatisfied, the Appellant filed an appeal.
Issues for Determination
Whether the Comparable Uncontrolled Price (CUP) method used by the Appellant for pricing products was appropriate.
Whether the 5% markup applied on services offered by the Appellant was correctly determined based on a detailed benchmarking exercise.
Whether the Appellant under-declared incomes arising from inter-company transactions.
Whether stock transfers and related receipts/payments between the Appellant and Car & General Trading Limited (CGTL) were taxable.
Whether certain contra entries related to corporate income tax were correctly assessed.
Whether transactions between the Appellant and Safaricom were controlled transactions under the Income Tax Act.
Whether the Respondent’s assessment was contrary to the supporting documentation provided.
Whether CCG Holding has economic substance in Mauritius and is effectively managed from Mauritius.
Decision of the Tribunal
The Tax Appeal Tribunal allowed the appeal in part. The Tribunal found that:
The CUP method used by the Appellant was appropriate for pricing the products.
The 5% markup on services was correctly determined based on the benchmarking exercise.
The Appellant did not under-declare incomes from inter-company transactions.
Stock transfers and related transactions with CGTL were not taxable in the books of the Appellant.
Contra entries were correctly reversed and booked in the appropriate ledgers.
Transactions between the Appellant and Safaricom were not controlled transactions.
The Respondent’s assessment was partially incorrect based on the supporting documentation.
CCG Holding has economic substance in Mauritius and is effectively managed from there.
The Tribunal’s decision in Cummins Car & General Limited v Commissioner of Legal Services and Board Coordination provide clarity on the appropriate methods for pricing and assessing inter-company transactions, emphasizing the importance of detailed documentation and proper benchmarking exercises. The partial allowance of the appeal highlighted the need for accurate and fair tax assessments by the authorities.
Nishil Asvin Haria (the Appellant) is a Kenyan citizen residing in Nairobi and a shareholder of Harleys Limited, a company operating throughout the East African region. The Commissioner of Domestic Taxes (the Respondent) issued a pre-assessment demand notice for Kshs. 13,011,451.00 in relation to Capital Gains Tax (CGT) on 6th June 2023.
The Appellant objected to this demand, arguing that the transfer of shares occurred in 2022 when the CGT rate was 5%, not 15% as assessed by the Respondent. The Respondent confirmed the assessment, leading the Appellant to file an appeal.
Issues for Determination
Whether the CGT rate applicable to the share transfer should be 5% (2022 rate) or 15% (2023 rate).
Whether the Respondent’s assessment was retrospective and thus contrary to the principle that laws do not apply retrospectively.
Whether the Respondent erred in law and fact by imposing taxes based on the rate of a subsequent year.
Decision of the Tribunal
The Tax Appeal Tribunal dismissed the appeal, holding that:
The CGT rate of 15% was correctly applied as the payment was received in 2023, despite the transfer occurring in 2022.
The Respondent’s assessment was not retrospective as the tax liability arose in the year the payment was received.
The Respondent did not err in law or fact in its assessment.
The Tribunal’s decision in Haria v Commissioner of Domestic Taxes underscores the importance of the timing of tax liabilities and the application of tax rates based on the year of payment receipt. This case highlights the need for taxpayers to be aware of changes in tax rates and their implications on transactions spanning multiple years.
NK Brothers Limited (the Appellant) is a private limited company incorporated in Kenya, primarily engaged in the construction of high-rise buildings, commercial and residential complexes, and other infrastructure projects. The Commissioner of Domestic Taxes (the Respondent) disallowed tax credits amounting to Kshs. 24,434,116.00 claimed by the Appellant for the year 2016.
These credits were related to manual withholding tax certificates. The Appellant objected to the disallowance, but the Respondent maintained its position, leading the Appellant to file an appeal.
Issues for Determination
Whether the Respondent erred in failing to capture and credit the Appellant’s manual withholding tax credits for the year 2016.
Whether the Respondent’s actions were contrary to Section 42 of the Income Tax Act.
Whether the penalties and interest raised by the Respondent were erroneous and should be cleaned up from the Appellant’s iTax ledger.
Decision of the Tribunal
The Tax Appeal Tribunal struck out the appeal, holding that:
The Respondent did not err in failing to capture and credit the manual withholding tax credits as the Appellant did not provide sufficient evidence to support its claim.
The Respondent’s actions were in accordance with the provisions of the Income Tax Act.
The penalties and interest raised were correctly assessed and should remain in the Appellant’s iTax ledger.
The Tribunal’s decision in NK Brothers Limited v Commissioner of Domestic Taxes emphasizes the importance of providing adequate documentation to support tax credit claims. It also highlights the necessity for taxpayers to ensure compliance with tax laws and regulations to avoid penalties and interest.
Beru Trading Limited, a private limited liability company involved in the importation of gemstones, challenged the Kenya Revenue Authority’s (KRA) assessment of its Value Added Tax (VAT) claims. The KRA had issued notices of findings and additional assessments, alleging that Beru Trading had over-claimed input tax, claimed VAT from fictitious inputs, and double-claimed input tax for the period from March 2018 to December 2021.
Dissatisfied with the KRA’s objection decision, which confirmed the VAT assessments, Beru Trading filed an appeal with the Tax Appeals Tribunal (TAT).
Issues for Determination
The TAT identified several key issues for determination:
Accuracy of Records: Whether the KRA failed to consider the true and correct records of Beru Trading.
Unauthorized Transactions: Whether the assessed incomes resulted from unauthorized dealings and transactions by known individual taxpayers.
Fair Administrative Action: Whether the KRA’s handling of the case infringed on Beru Trading’s right to fair administrative action under Article 47 of the Constitution of Kenya.
Excessive Tax Demand: Whether the KRA’s demand of Kshs. 83,659,664.27 was excessive, punitive, and beyond the appellant’s ability to pay.
Decision of the Tribunal
The TAT dismissed the appeal, upholding the KRA’s assessment. The tribunal found that:
Records and Evidence: Beru Trading failed to provide sufficient evidence to support its claims. The only evidence presented was a report of alleged fraud filed at the Parklands Police Station, which was deemed inadequate.
Unauthorized Transactions: The tribunal did not find merit in the argument that the assessed incomes resulted from unauthorized transactions by other taxpayers.
Fair Administrative Action: The TAT concluded that the KRA had followed due process and that Beru Trading’s right to fair administrative action was not violated.
Tax Demand: The tribunal determined that the KRA’s tax demand was justified based on the evidence and applicable tax laws.
The case of Beru Trading Limited v Commissioner of Legal Services and Board Coordination underscores the importance of maintaining accurate records and providing substantial evidence when disputing tax assessments. The TAT’s decision to uphold the KRA’s assessment highlights the tribunal’s role in ensuring compliance with tax laws and the necessity for taxpayers to adhere to procedural requirements when filing appeals.
The M-Pesa Foundation Charitable Trust, established by M-PESA Holding Company Limited, focuses on alleviating poverty and promoting education in Kenya as part of its corporate social responsibility. The Trust had obtained an income tax exemption from the Commissioner of Domestic Taxes.
However, following an audit of the Trust’s tax records from April 2016 to February 2023, the Commissioner issued an assessment demanding Kshs. 19,414,508.00 for withholding tax, principal tax, interest, and penalties. The Trust objected to this assessment, leading to a revised demand of Kshs. 6,487,830.00.
Issues for Determination
Validity of the Tax Assessment: Whether the tax assessment issued by the Commissioner was valid and in accordance with the law.
Tax Exemption Status: Whether the Trust’s activities qualified for the income tax exemption it had been granted.
Procedural Fairness: Whether the audit and subsequent assessment process adhered to procedural fairness and legal requirements.
Decision of the Tribunal
The Tax Appeal Tribunal upheld the Commissioner’s revised assessment of Kshs. 6,487,830.00. The Tribunal found that the audit and assessment process was conducted in accordance with the law and that the Trust did not provide sufficient evidence to support its claim for a full exemption from the assessed taxes.
The Tribunal’s decision in M-Pesa Foundation Charitable Trust v Commissioner of Domestic Taxes underscores the importance of compliance with tax laws and the need for charitable organizations to maintain thorough and accurate records to support their tax exemption claims. The M-Pesa Foundation Charitable Trust was required to pay the revised tax assessment, highlighting the necessity for transparency and adherence to legal procedures in tax matters
Kakuzi PLC, a public limited company in Kenya, is engaged in the cultivation and sale of avocados, macadamia nuts, green tea leaf, blueberries, livestock, and commercial tree farming. The Commissioner for Domestic Taxes conducted an audit of Kakuzi PLC’s tax affairs, focusing on income tax and VAT.
The audit revealed discrepancies, particularly concerning withholding tax on commissions paid to non-resident marketing agents in various countries, including the UK, France, Spain, The Netherlands, and South Africa. The Commissioner issued a tax assessment demanding Kshs. 16,210,896.00, which Kakuzi PLC contested.
Issues for Determination
Withholding Tax on Commissions: Whether the withholding tax assessed on commissions paid to non-resident marketing agents was justified.
Legal Precedents: Whether the Commissioner ignored binding legal precedents in making the assessment.
Procedural Fairness: Whether the assessment process adhered to principles of procedural fairness and legitimate expectation.
Decision of the Tribunal
The Tax Appeal Tribunal ruled in favor of Kakuzi PLC, allowing the appeal. The Tribunal found that the Commissioner had erred in law and fact by assessing withholding tax on commissions paid to non-resident marketing agents.
The Tribunal noted that the Commissioner failed to consider relevant legal precedents and did not adhere to procedural fairness in the assessment process.
The Tribunal’s decision in Kakuzi PLC v Commissioner for Domestic Taxes highlights the importance of adhering to legal precedents and ensuring procedural fairness in tax assessments. For Kakuzi PLC, this ruling means relief from the disputed tax assessment, reinforcing the necessity for tax authorities to follow established legal frameworks and fair administrative practices
Preparing for a Tax Appeal
If you are considering filing an appeal with the TAT, it is essential to prepare thoroughly. Here are some key steps:
1. Gather Documentation
Collect all relevant documentation, including:
Tax returns
Correspondence with the KRA
Financial records
Any other documents that support your case
2. Consult a Tax Expert
Engaging a tax consultant or attorney who specializes in tax law can provide invaluable guidance. They can help you navigate the complexities of the appeal process and ensure your case is presented effectively.
3. Understand the Grounds for Appeal
Clearly define the grounds for your appeal. Common grounds include:
Incorrect assessment of tax liability
Errors in the application of tax laws
Lack of procedural fairness
Common Questions About the Tax Appeals Tribunal
1. How long does it take to resolve an appeal at the TAT?
The timeline for resolving an appeal can vary depending on the complexity of the case. However, most appeals are resolved within six months from the date of filing.
2. Can I represent myself in a tax appeal?
Yes, taxpayers can represent themselves in tax appeals. However, it is advisable to seek professional representation, especially in complex cases.
3. What happens if I am dissatisfied with the TAT's decision?
If dissatisfied, a party can appeal the TAT's decision to the High Court on points of law, provided they seek leave from the court.
Conclusion
Navigating Tax Disputes: Your Guide to the Tax Appeals Tribunal in Kenya serves as a vital mechanism for resolving tax disputes and ensuring fairness in the tax system. By providing an independent platform for appeals, the TAT helps maintain taxpayer confidence and promotes compliance with tax laws.
Recent cases demonstrate the tribunal’s role in interpreting tax legislation and protecting taxpayers’ rights. For legal professionals and taxpayers, understanding the TAT’s functions and processes is essential for navigating the complexities of tax disputes.
If you find yourself in a tax dispute, understanding the TAT's processes and recent case law can significantly enhance your chances of a successful appeal. Always consider seeking expert legal advice to navigate this complex terrain effectively.
If you are facing a tax dispute or need assistance with an appeal, contact us today. Our experienced tax lawyers are here to help you navigate the complexities of the tax system and advocate for your rights.
To learn more, see the Decisions of the Tax Appeals Tribunal.
