Have you ever heard the phrase ‘he who alleges must prove?’ That is the exact scenario that taxpayers in Kenya face whenever they challenge a tax assessment by the Kenya Revenue Authority. In this guide, we discuss the circumstances under which tax disputes in Kenya arise and how the burden of proof comes into play.

What Are Tax Disputes in Kenya?

Tax disputes in Kenya refer to disputes invariably involving KRA (Kenya Revenue Authority) and the taxpayers. They may involve claims by the KRA against the taxpayers and sometimes claims by the taxpayers against the KRA.

These claims could be in the form of the following:

• The under declarations of taxes,
• Failure to file the returns in time,
• Irreconciliations in the accounts,
• Failure to pay due taxes or penalties,
• Failure to withhold taxes and or failure to remit the withheld taxes to KRA, etc.

The list here is endless.

These disputes may be initiated by KRA through assessments, inquiries, investigations, and demand notices sent to the taxpayers or even through a visit to the taxpayer’s premises. When this initiation is communicated to the taxpayer, the taxpayer, upon receiving the same, is expected to either admit to the assessment or demand notice or object to the same.

If the taxpayer decides to file an Objection, this crystallizes into a dispute which has to be resolved either in the KRA offices or higher up in the dispute resolution levels, including the Tax Appeals Tribunal and the Higher courts if need be.

The Burden of Proof in Tax Disputes in Kenya.

When it comes to resolving disputes, tax matters are very different from civil matters. How so? In civil disputes, such as contract breaches, the burden of proof is governed by the Kenya Evidence Act, which states that the plaintiff (the person or entity filing the lawsuit) bears the burden to prove the claims that they are making. Standard of proof comes into play such that the plaintiff is deemed to be on the right if their claims are more likely to be true than not. However, this burden of proof can also shift when the defendant brings up a defense or counterclaim. In this case, the defendant bears the burden of proof in regard to their counterclaim.

What about in tax disputes in Kenya? These are considered civil in nature, but they are well covered in the tax laws and, in particular, the Tax Procedure Act (TPA), Income Tax Act, Value Added Tax (VAT) Act, and the East African Community Customs Management Act (EACCMA). These laws position the taxpayer as having the burden of proof in proving that the tax assessment or decision made by the KRA is incorrect. If the taxpayer fails to do this, then they are obliged to pay the taxes in issue as per the KRA’s demands.

When it comes to the standard of proof, taxpayers must provide verifiable records that back up their claims. It is important to note that while the primary burden lies with the taxpayer, it is not absolute, and KRA is also required to provide reasonable bases for its decisions. Moreover, once the taxpayer produces verifiable records, the burden shifts back to KRA to substantiate their assessment. For example, where KRA accuses a taxpayer of tax evasion, the burden of proof is on them to prove this said misconduct with clear and convincing evidence.

How to Prepare Burden of Proof for Tax Disputes in Kenya

Taking into consideration the aforesaid laws and the role of the burden of proof, the taxpayer must be prepared at all times, should any tax disputes arise between them and KRA, in such a way that they can prove KRA to be wrong in its demands.

There are taxpayers whose businesses do not require them or do not need some records provided for in the law. The people in these businesses, however, keep some other records.

These taxpayers can produce the documents that they keep, which are not necessarily as provided for in the law, if they are relevant to prove their case. The taxpayers covered in this bracket must explain logically to KRA why they do not keep the documents as provided by the law. They also have to show the relevance of what they keep to the tax in question.

What Documents Are Required During Tax Disputes in Kenya?

As earlier stated, documents necessary during tax disputes in Kenya vary from one business to another. However, there are some commonalities to keep in mind, as follows:

1. The Objection. The document referred to as an Objection is a major part of the burden of proof. It’s this objection, well supported by documents, that is examined by the Commissioner of the Revenue body to determine whether the assessment or demand notice on due taxes from the Revenue body to the taxpayer will stand or not.
2. Relevance. The taxpayer, in producing the supporting documents, must also ensure that the same are relevant. They must support the taxpayer’s objection as much as possible. If they fail in this, then they are of no value to the taxpayer.
3. Legibility. It is also important to ensure that the documents are legible; otherwise, they will not be read by the other party. It’s also advisable to bind them or clip them together so that some do not fall off and get lost. If the taxpayer is sending them to the other party online, he must make sure that all of them are sent and in the right chronological order so that the other party can understand them and give them their due consideration.
4. The Need for Copies. Some taxpayers surrender their original documents to KRA and are left with nothing. If, later on, in the dispute resolution process, they require the surrendered documents and cannot retrieve them from KRA, or they are lost at some point in the process, and they have no other documents or copies of the same in their possession, they are left helpless. They may end up paying a tax they should never have borne, and sometimes even with penalties. Documents and proper records are gold to tax disputes, but they must be produced at the right time in the right manner.

Thus, preparing documents is not enough. You also need to ensure that they are relevant to your dispute, are legible, and that you have enough copies of the same to ensure that you have covered all your legal bases.

Understanding the Role of Timing.

The Law also covers the period within which the taxpayer should keep the records and documents in issue. Normally, this is five years unless exceptional circumstances are subsisting involving, for example, fraud cases involving the taxpayers or cases of criminal negligence.

The taxpayer, other than having the documents required by the law in their possession, must also produce the same at the right time. All these documents must be produced at the time of the objection as supporting documents. The taxpayer must also clearly show their relevance to the Revenue Authority. If the taxpayer has the records but does not produce them at the right time, that is, at the objection stage mainly, they will be barred from producing them at a later stage.

Dealing with Tax Disputes in Kenya the Professional Way.

There have been many cases where the taxpayers have lost their fight against KRA because they did not understand that they had the burden all along to prove KRA wrong in its tax demands. In other cases, the taxpayers did not understand at what point in the process they needed to produce the documents. Again, there are cases where the taxpayers never kept their records, and so when KRA came calling, they could not wriggle themselves out of the entanglement.

These are all avoidable situations when you have the right information available to you at the right time. If you are navigating a tax dispute in Kenya and would like to receive professional and timely help before things escalate further, you can reach out to our team using the form below, and our team will contact you as soon as possible.