How do tax assessments arise? How does the Legal team get involved in the process?
The Kenyan tax system is a self-assessment system where a taxpayer assesses himself or herself and makes payments to KRA.
However, some individuals or business entities abuse the trust bestowed on them by the law to under declare or not to declare their income hence evading payment of taxes.
Before KRA makes a demand for taxes or issues an assessment, there is an elaborate engagement whereby documents, records and other information is requested for from the taxpayer for purposes of verifying the self-assessment. Where gaps are identified, leading to tax liability, the taxpayer is informed both orally and in writing and is requested to respond to the issues before an assessment or demand is issued. Thereafter the taxpayer is informed of his or her right to object to the demand or assessment.
The taxpayer has the option of paying the taxes or objecting to the demand or assessment and appealing to the Tax Appeals Tribunal.
From a legal point of view, do taxation laws deprive citizens the burden of proof to successfully challenge income tax assessments?
The Kenyan tax system is a self-assessment system where a taxpayer assesses himself or herself and makes payments to KRA. When a dispute arises, the taxpayer has the burden to support how he computed the self-assessed taxes.
That burden can only shift where KRA has issued additional tax assessments. KRA must state the sources, the law and the reason for the additional assessments.
What is the approximate time taken to conclude a tax case from assessment, dispute resolution to recovery of the taxes?
It takes a minimum of two (2) years to conclude a case at the Tax Appeals Tribunal, the High Court and Court of Appeal. Tax recovery takes a maximum of six (6) Months from the time it is initiated. However, some cases may take a shorter period to conclude depending on the availability of the parties and readiness of the Tribunal or Court. There are situations where parties opt for ADR and this takes three (3) Months or 90 days. The timelines for concluding ADR is dictated by the law.
What are some of the high impact cases handled by Legal that resulted to revenue collection especially in the FY 2018/19 and 2019/20?
Among the cases that have been resolved and taxes agreed involve a cargo holding logistic company, an excisable goods manufacturing company, a customs freight station, two county governments and a wind farm company whereby billions have been recovered.
Does the Alternative Dispute Resolution (ADR) unit handle some of these cases that are already in court? Is it the defendant or the complainant who initiates ADR, in such a case?
Yes. KRA or the taxpayer can apply for ADR. The purpose of ADR is enable the parties to engage and arrive at an amicable solution to the tax dispute. It’s a win –win situation.
In case a taxpayer declares bankruptcy following a complete court case against her/him by KRA, what is the way forward?
Bankruptcy proceedings are filed in the High Court and there is an elaborate process involved. The person seeking to be declared bankrupt must inform its creditors of the bankruptcy proceedings. The legal team would ensure that the KRA is listed as a creditor during the bankruptcy proceedings and further ensure that the tax owed is listed in priority to other creditors.
We have not had cases where a taxpayer moves to be declared bankrupt following a court case. However we have had instances of company’s being dissolved and for that we have the Insolvency Act to guide us.
What strategies has KRA instituted to ensure that cases are well handled in the Tax Appeals Tribunal and the court leading to revenue collection?
We have a number of strategies:
- The lawyers work hand in hand with the tax auditors who raise assessments to ensure that they are aligned on the issues being addressed. In KRA cases we have witnesses who are tax experts testifying in the cases and this ensures that technical questions are given first hand answers to the Tribunal or judge.
- All cases are evaluated by a Technical Evaluation Committee that ensures the KRA case is airtight if the case is to be litigated. If the case is weak the committee recommends settlement of the case by KRA. This ensures we only litigate strong cases that are likely to result in revenue collection.
- Within the litigation division, cases are handled by teams of lawyers as opposed by an individual counsel. This ensures objectivity, creativity, and support in the litigation process.
- KRA lawyers go on trainings from time to time to build capacity as both technical tax lawyers and in trial advocacy.
- KRA is a member of the Court users Committee which is a forum bringing together litigants to deliberate on the best ways to fast track the hearing and determination of cases.
Is there a time limit for KRA to assess tax arrears.
The law allows taxpayers to keep records for a period of five (5) years so that KRA is able to assess taxes for the same period. However, where fraud is detected the law allows KRA to go back as far as possible for purposes of prosecution of the offenders and the recovery of the taxes.