As per the tax laws in Kenya, all adults earning income are expected to also pay taxes on the same. These taxes fall into different categories depending on the sources of income at play. In an ideal situation, all registered taxpayers would make their dough and consequently pay the appropriate taxes, and there would be peace in the world. However, the aforesaid scenario does not play out in many situations, and disputes do arise between the Kenya Revenue Authority and the taxpayers in Kenya. So, why does this happen, and what can you do if you find yourself subject to tax enforcement from KRA?
What Causes Tax Enforcement from KRA?
Tax disputes in Kenya arise due to different reasons, but they basically revolve around two things. The first is whether the taxpayer owes taxes or not, and the second is the figures at play. In the latter case, the figures manifest in assessments made to the taxpayers or tax decisions made by the KRA against the taxpayer.
But where do these assessments come from? These assessments or tax decisions may be on decisions made against the following:
- Applications for tax refunds by taxpayers,
- Confirmed assessments,
- Demands for principal taxes,
- Interests and penalties on various taxes, etc.
These are just a few examples of the common reasons, and it is important to note that tax disputes arise out of innumerable issues and situations.
When Can KRA Institute Tax Enforcements?
At this point, you may be wondering if you can be subject to tax enforcement from KRA on the basis of an assessment. The answer is no.
When it comes down to it, tax disputes can be at different levels. They could be in the early stages at the KRA offices pending a solution between the parties. They could have moved on to the Tax Appeal Tribunal, or they could even be a matter in the Courts. Thanks to these varying stages, not all taxpayers are subject to tax enforcement.
In fact, if the dispute has not been resolved or a judgment has not been made on the same, it is in some abeyance status awaiting the final determination. At this point in time, KRA does not have the power to take action for enforcement while the dispute is ongoing.
Nevertheless, sometimes KRA can coerce the taxpayer to pay the disputed taxes even as the parties are awaiting a decision.
Cases of Harassment by the KRA.
While the KRA is bound by laws that we will discuss in the next section, it sometimes does abuse the powers in its possession. In truth, businesspeople and even individual taxpayers in Kenya are not new to stories or even personal experiences involving harassment by KRA officers. Examples include:
- Enforcing decisions even where the taxpayer has some tax credits that can readily clear the tax amount in dispute.
- Entering the premises of the taxpayers without any notice.
- Demanding and or carrying records without authority from the owners of business premises or from the courts.
Overall, KRA officers have been known to harass taxpayers because of presumed wrongdoings and have done all manner of abuse in the guise of collecting taxes. These activities often leave businesspeople and individual taxpayers in Kenya in positions where they feel that they must comply with tax enforcement from KRA even if they do not believe that they owe taxes or know that the quoted figures are incorrect.
Does the Law Protect You From Tax Enforcement from KRA?
As we have stated, KRA should not enforce taxes before a decision has been arrived at, but there are cases where it coerces taxpayers to pay the taxes anyway. So, where does the law stand in this?
The law, through the Tax Procedures Act (TPA) and the East Africa Community Customs Management Act (EACCMA) for all tax matters and the customs matters respectively, empowers the KRA to enforce decisions and judgments so as to collect taxes. This process is done through the issuance of a communique, such as:
- Agency Notices,
- Warrants of distress, and
- Revocation of Tax Compliance Certificates, etc.
Therefore, there are systems in place to protect taxpayers from tax enforcement from KRA unless there is evidence that the taxpayers should be making the said payments.
Where Can You Seek Legal Help?
Given that KRA is known to flagrantly abuse its powers against the interests of the taxpayers, you can use the law to guard against such abuse. How?
The Tax Appeals Tribunal.
Where taxpayers are subject to tax enforcement from KRA resulting from coercion, they can approach the Tax Appeals Tribunal and seek protection therein. The Tribunal has been at the forefront in issuing orders to stop that practice until the disputes are resolved. Most importantly, the Tribunal can pause KRA’s aggressive debt collection where the same is unwarranted or stop the imposition of Agency notices until the dispute between the parties is determined.
The Court System.
Many taxpayers do not know this, but when KRA institutes tax enforcement, they can approach the courts, which can consequently give orders stopping the Revenue body from such abuse.
Take the example of the constitutional court in Kenya in the case of Nairobi Civil Application No. 170 of 2018 between KRA and Dr. Robert Ayisi and another. In this instance, the court did explore the immense harassment that can be visited upon taxpayers by KRA. It concluded that KRA had acted against the law and, in the same matter, also stated that some sections of the Tax Procedures Act (TPA) are unconstitutional. It concluded that the taxpayer in that matter was mistreated and the Revenue body acted against the law. However, at present, there is an appeal against that decision awaiting determination in the Court of Appeal.
Alternative Dispute Resolution.
As a taxpayer, the law also provides you with a statutory framework that allows settlement of disputes out of court under the ADR (Alternative Dispute Resolution). This option enables you to bypass costly and protracted litigation. It is also highly effective for negotiating reduced penalties, interest write-offs, and agreeing on structured payment plans.
Nuances to Consider During Tax Enforcement from KRA.
Officers from KRA often get away with harassing taxpayers because many of them are unaware of the current tax laws. That said, here are some aspects to keep in mind that can protect you in the event of an illegal enforcement.
Statute of Limitations.
KRA has been known to do assessments against taxpayers without considering that the law requires that such assessments must observe the 5-year law period. If KRA attempts to raise a tax audit demanding principal taxes or penalties for years older than five, taxpayers can invoke the statutory time bar to completely nullify those specific demands unless KRA can definitely prove deliberate fraud.
Alternative Paperwork.
The KRA has also been known, especially recently, for demands that all business expenses must be backed by Etims-generated invoices. Where the taxpayer does not have such backing, he can demonstrate a robust digital audit trail, verifiable contracts, and proof of payment, thus shifting the burden of proof back onto KRA to prove the transactions were fictitious.
Grounds for Criminal Prosecution.
KRA also routinely threatens to pursue criminal prosecution for tax evasion under the EACC (Ethics and Anti-Corruption Commission) and under the TPA. A taxpayer’s defense here would be that criminal liability requires proof of mens rea (intent to defraud). Thus, a taxpayer can offer a strong defense demonstration that unpaid taxes were a result of genuine misinterpretation of complex tax law, procedural errors, or mere negligence rather than deliberate evasion.
Get Expert Legal Help Against Tax Enforcement.
The above are some of the disputes you could encounter and the possible avenues available to you to help you avoid tax enforcement from KRA or lessen the financial burden of the same. However, there are many disputes outside the coverage of this guide. Again, the application of the solutions may require a professional’s assistance, and that’s why we offer legal consultations through which you can get tailored advice per your specific circumstances.
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