By CS Paul Muema Matuku EBS

Introduction

Taxation is fundamental to government revenue generation, yet disputes over tax assessments frequently arise. In Kenya, tax litigation is primarily handled by the Tax Appeals Tribunal (TAT) at the first instance and thereafter appeals lie with the High Court, and the Court of Appeal. Two legal principles are key to these disputes, these being: the burden of proof and the standard of proof. The burden of proof determines which party—either the taxpayer or the Kenya Revenue Authority (KRA)—must substantiate their claims, while the standard of proof defines the level of certainty required for a claim to be upheld.

This article critically examines these principles as applied in Kenyan tax law, drawing from statutory provisions, case law, and practical implications in tax administration. It also explores how these concepts shape tax compliance and enforcement and discusses instances where the burden shifts like a swinging pendulum between parties.

The Burden of Proof in Tax Cases

Section 56 of the Tax Procedures Act which falls under Part VIII ‘on Tax Decisions, Objections and Appeals’ provides for the burden of proof in tax disputes as follows:

"In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect."

Similarly, Section 30 of the Tax Appeals Tribunal Act reinforces this principle, stating that the appellant (usually the taxpayer) must prove:

1. That an assessment is excessive, or
2. That a tax decision should not have been made or should have been made differently.

In tax matters, it is now settled that the burden of proof swings between the taxpayer and the taxman, but is mostly on the taxpayer.

Burden of Proof in Customs Cases

Under section 223 of the East Africa Community Customs Management Act (EACCMA, 2004) the issue of burden of proof is clearly spelt out as follows;

‘In any proceedings under this Act-

(a) the onus of proving the place of origin of any goods or the payment of the proper duties, importation, landing, removal, or the lawful conveyance, exportation, carriage coast- wise, or transfer, of any goods shall be on the person prosecuted or claiming anything seized under this Act;’

Further sub-section (b) affirms that ‘the averment by the Commissioner on any matter or document shall be prima facie evidence of such fact;’

These provisions establish the presumption of correctness, meaning that KRA’s tax assessments are deemed valid unless the taxpayer provides incontrovertible evidence. The rationale behind this presumption is:

• KRA’s tax assessments are presumed to be based on statutory obligations.
• Governments require a reliable revenue stream for public services.
• Taxpayers have the primary access to documentation that can support their claims.

Judicial Interpretation of the Burden of Proof for Customs cases

Several court decisions in Kenya and other East African Community (EAC) member states have reinforced the principle established in Section 223 of the EACCMA 2004 that once the Commissioner alleges non-compliance with customs laws, the accused must provide sufficient proof to the contrary. In the cases of Kenya Revenue Authority v. Export Traders Limited (2020), the Kenyan High Court ruled that in cases where the KRA alleged mis-declaration of imports, the burden was on the trader to prove the correct classification and origin of the goods. The court emphasized that the law presumes customs authorities' records to be correct unless proven otherwise.

In the Tanzanian Case of Republic v. Hassan Ali (2019), the Tanzanian Court of Appeal upheld the seizure of imported motor vehicles for which proper duty documentation was lacking and duty not paid. The accused person failed to provide evidence of duty payment, and the court ruled that the presumption of illegality stood unchallenged under Section 223 of EACCMA 2004. Further, in the case of Uganda Revenue Authority v. Diamond Trust Bank Uganda Ltd (2021), Uganda’s Tax Appeals Tribunal held that once the customs authority asserts that duties were unpaid, the responsibility shifts to the importer to demonstrate full compliance with customs regulations.

Judicial Interpretation of the Burden of Proof for tax cases

While the burden of proof in tax initially rests on the taxpayer, it is not absolute. Under certain circumstances, the burden may shift to KRA, particularly in cases involving fraud or improper tax assessments.

Kenyan courts have extensively ruled on the burden of proof in tax matters. A review of key cases provides insights into its practical application.

Burden of proof in tax disputes

In tax disputes, the burden of proof can shift between the taxpayer and the tax authority, resembling the motion of a pendulum. The High Court of Kenya in the case of Commissioner of Investigations and Enforcement v Pearl Industries Limited (Tax Appeal E086 of 2020) articulated this concept. The court observed as follows:

"…In this case, the pendulum of proof swung three times; the first was upon the Respondent (Pearl Industries Ltd), which it did by providing the documents requested by the Commissioner; the second shifted to the Commissioner, who after reviewing the documents challenged their authenticity and validity. This meant that the burden of proof finally swung back to the Respondent to prove that the Commissioner was wrong in its position and overall findings."

The above analogy underscores the dynamic nature of the burden of proof in tax disputes, highlighting that it may shift between parties as evidence is presented and contested.

In Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] KEHC 4148 (KLR), the High Court reaffirmed that the taxpayer must present competent and verifiable evidence to challenge a tax assessment. The court emphasized that the presumption of correctness applies unless rebutted.

Similarly, in Kenya Revenue Authority v Man Diesel Turbo Se Kenya, [2021] KEHC 13347 (KLR) the court outlined three justifications for placing the burden on taxpayers:

• Presumption of Correctness – KRA’s assessments are valid unless proven otherwise.
• Government’s Need for Revenue – Tax collection is crucial for national economic sustainability.
• Taxpayer’s Possession of Evidence – Since taxpayers control their financial records, they must substantiate their tax positions.

Circumstances When the Burden May Shift

Although the burden primarily rests on the taxpayer in both tax and customs cases, courts have identified scenarios where it can shift to KRA.

In Commissioner of Domestic Taxes v Metoxide Limited, [2022] KEHC 14613 (KLR) the court ruled that while taxpayers must initially provide documentation supporting their tax positions, if KRA challenges the validity of the documents, the burden shifts back to the taxpayer to provide additional supporting evidence.

A similar approach was taken in Commissioner of Domestic Taxes v Structural International Kenya Ltd, [2021] KEHC 152 (KLR) where the court held that if KRA disputes the authenticity of transactions, the taxpayer must produce additional records such as stock movement documents and bank statements.

In Commissioner of Investigations and Enforcement v Pearl Industries Limited, (Supra) KRA established a prima facie case of tax fraud. The court ruled that where fraud is alleged, the taxpayer must provide clear and convincing evidence to disprove the claims.

Procedural Fairness and Transparency

While the burden of proof generally lies with the taxpayer, courts have ruled that KRA must act transparently and provide clear reasons for its tax assessments. In Equity Group Holdings Limited v Commissioner of Domestic Taxes, 2021] KEHC 25 (KLR) the High Court held that KRA cannot impose tax liabilities arbitrarily and must disclose the rationale behind its decisions.

Similarly, in Commissioner of Domestic Taxes v Galaxy Tools Limited, [2021] KEHC 5530 (KLR) the court emphasized that once a taxpayer provides sufficient proof of compliance; KRA must counter with substantive evidence rather than assumptions.

Standard of Proof in Tax Cases

The standard of proof in tax disputes refers to the level of evidence required to convince a court or tribunal of a claim. In tax matters, the applicable standard varies depending on the nature of the case.

Balance of Probabilities (Standard in Civil Tax Cases)

In general tax disputes, the standard of proof is on a balance of probabilities, meaning that a taxpayer must demonstrate that it is more likely than not that the tax decision is incorrect. This is consistent with the principle that tax litigation falls under civil law.

For instance, in Kenya Revenue Authority v Maluki Kitili Mwendwa, the court confirmed that unless fraud is alleged, the standard remains the balance of probabilities.

Higher Standard in Fraud Cases

Where KRA alleges tax fraud, evasion, or misrepresentation, courts have applied a higher “clear and convincing evidence” standard. In Commissioner of Domestic Taxes v Trical and Hard Limited, the High Court ruled that taxpayers accused of fraudulent tax practices (such as false invoices) must provide more than mere documentation—they must present corroborative evidence such as delivery notes, stock records, and supplier confirmations.

Similarly, in Commissioner of Domestic Taxes v Altech Stream (EA) Limited, the court held that failure to maintain accurate records weakens a taxpayer’s ability to contest a fraud-related tax assessment.

Practical Applications in Tax Administration

The burden and standard of proof in tax matters have significant practical implications in Kenya’s tax administration.

Taxpayer Compliance and Record-Keeping

Since the burden of proof rests on the taxpayer, businesses must maintain accurate and comprehensive financial records. Under the Tax Procedures Act, taxpayers are required to retain tax records for at least five years. The ruling in Commissioner of Domestic Taxes v Altech Stream (EA) Limited reinforced the importance of record-keeping, with the court holding that the failure to produce relevant records weakens a taxpayer’s case.

KRA’s Investigation Powers and the Shifting Burden

KRA has broad investigative powers, allowing it to conduct audits, request documentation, and issue additional assessments. However, once a taxpayer submits credible evidence challenging an assessment, KRA must provide substantive reasons for rejecting the evidence. In Commissioner of Domestic Taxes v Galaxy Tools Limited, the court ruled that KRA cannot rely solely on assumptions or estimates without countering the taxpayer’s evidence.

Impact on VAT Compliance and Refunds

One of the most contested tax issues involves Value Added Tax (VAT) refunds. In Commissioner of Domestic Taxes v Metoxide Limited, the court held that taxpayers seeking VAT refunds must demonstrate actual transactions beyond invoices. This means that businesses must retain supporting documentation such as payment receipts and delivery confirmations.

Combatting Tax Fraud and Evasion

In fraud-related cases, KRA bears an initial burden to present evidence supporting its claims. However, once a prima facie case is established, the burden shifts to the taxpayer. This was evident in Commissioner of Investigations and Enforcement v Pearl Industries Limited, where the court ruled that suspected tax evaders must present strong counter-evidence.

Conclusion

The burden and standard of proof in Kenyan tax cases are heavily weighted against taxpayers, requiring them to provide substantive and credible evidence to challenge tax decisions. Courts have consistently upheld the presumption of correctness in KRA’s assessments, reinforcing the statutory framework under the Tax Procedures Act and the Tax Appeals Tribunal Act.

However, the burden is not absolute—it may shift to KRA in cases where the taxpayer provides credible documentation; KRA makes arbitrary tax assessments; KRA alleges fraud; requiring higher evidentiary standards. Practically, taxpayers can protect themselves by maintaining accurate records; seeking professional tax advice and ensuring transparency in transactions.

While tax administration requires efficient revenue collection, procedural fairness remains essential in ensuring a balanced approach between compliance enforcement and taxpayer rights. Kenyan courts continue to refine these principles, reinforcing a legal framework that supports both government efficiency and fair tax practices.

The Writer is the Commissioner for Legal & Board Services at the Kenya Revenue Authority