Kenyan taxpayers have a complicated relationship with the Kenya Revenue Authority (KRA), and for good reasons. The relationship is largely smooth when no tax compliance issues arise. However, the same relationship can be filled with fear, anxiety, and resentment, especially when KRA audits and assessments arise.
We’ve talked extensively about KRA audits and assessments, what triggers them, and how to handle them. After completing an audit or assessment, KRA will deliver a tax decision, mostly communicated via email and iTax. The tax administrator may also communicate through formal letters and notices. What most taxpayers don’t realize is that a KRA decision is not final and conclusive. If you disagree with the assessment or tax decision, you have a right to object to it through a legal process. We prepared this guide to highlight the procedure of objection to a tax decision in Kenya.
Understanding Tax Decision Objection in Kenya
Under the Tax Procedures Act 2015, a taxpayer is entitled to object to a tax decision if dissatisfied. Section 51 of this act provides a legal procedure for objecting to such a tax decision. But what is a tax decision?
A tax decision goes hand in hand with a KRA audit or assessment. In layman’s terms, a tax decision is a determination or ruling made by KRA following a tax audit or assessment. It can establish additional tax liabilities, penalties, and compliance status. KRA tax decisions take various forms, including:
- Penalties and interests
- Additional taxes or amended amounts of the due tax
- Administrative decisions, like upholding or rejecting a tax claim
- Waiver application decision
- Enforcement decisions such as property seizure, freezing funds, and suspension of the tax compliance certificate (TCC)
If you’ve received any of the above tax decisions but you disagree with them, you can file an objection. Let’s find out the various grounds for tax decision objections.
Grounds for Tax Decision Objection
KRA tax decisions aren’t final and conclusive. If you are convinced that the tax authority erred in its decision, you can object to the decision. This ensures fairness and accountability. Below are the various grounds for tax decision objection in Kenya:
- Disputed tax assessment: For example, KRA may erroneously assess your taxes, including VAT, PAYE, or income tax.
- Tax calculation errors by KRA: You may notice errors in KRA’s tax computations leading to wrongful additional taxes, penalties, and interest.
- Improper application of tax laws: KRA might use incorrect tax rates or charge a tax on exempt goods and services.
- Disputed penalties and interest: If you’re dissatisfied with how KRA calculated penalties and interest.
- Misinterpretation of supporting documents: KRA may misinterpret the financial records and other supporting documents you submit upon their request.
- System errors in iTax: System errors can happen from your side as a taxpayer while filing returns or on KRA’s side.
Benefits of Objection to a Tax Decision
An objection to a tax decision protects the interests of taxpayers. Here are the benefits of an objection to a tax decision:
- Provides a legal avenue for taxpayers to challenge erroneous tax decisions.
- Gives KRA and taxpayers a chance to solve a tax dispute amicably.
- Ensures there’s accountability and transparency in tax administration.
- Provides checks and balances between the tax authority and taxpayers, more so protecting the taxpayer from forced collection of erroneous taxes and penalties.
- Gives the taxpayer a chance to explain themselves in case of tax non-compliance, e.g, by supplying missing information and documents.
- Protects taxpayers’ rights.
- Provides tangible benefits like reduced tax liability, waivers, reduction of penalties, and restoration of tax compliance status.
Procedure of Objection to a Tax Decision in Kenya: Step-by-Step Guide
Have you received a tax decision from KRA that you disagree with? Below is a step-by-step guide to objecting to a tax decision in Kenya:
Step #1: Review the Tax Decision
Once you receive that email or formal letter from KRA, read the decision carefully. Determine what kind of assessment it is and the provided timeline. Consider consulting a tax consultant for further explanation and review.
Step #2: Prepare Your Objection
KRA rejects poorly filed objections and appeals. To avoid this, you need to prepare valid grounds for your objection and submit supporting documents. Here’s how to prepare your objection:
- List all valid reasons for your objection-they must be factual and legal.
- Gather all important supporting documents, including filed returns, compliance certificates, acknowledgement receipts, invoices, and financial statements.
Step #3: File the Objection Via iTax
Under the Tax Procedures Act 2015, you are required to file an objection to a tax assessment and decision within 30 days after receiving the decision. This is done via the iTax platform. You can also choose to write a formal application and submit it to KRA via your local Independent Review of Objections (IRO) office. Remember to attach all relevant supporting documents and clearly state the objection grounds.
Step #4: Wait for KRA to Review the Objection
The TPA requires KRA to review the objection to a tax decision and issue an objection decision within 30 days after the taxpayer’s application. KRA’s objection decisions can vary. They include:
- No response, which means the decision was in the taxpayer’s favor and the previous decision has been dismissed.
- Confirmation of the initial tax decision.
- Amendment of the initial tax decision, e.g. reduced penalties and other tax liabilities.
- Vacate the initial tax decision.
Step #5: Accept or Appeal the Objection Decision
Upon receiving the KRA’s objection decision, you can accept or reject it. If you reject it, the next step is to appeal to the Tax Appeals Tribunal. This is done via iTax and addressed to the Local Committee Tribunal. A TAT appeal must be lodged within 30 days after getting KRA’s objection decision. Alternatively, you can escalate the matter through Alternative Dispute Resolution (ADR).
Step #6: Appeal to the High Court
Under Section 53 of the TPA 2015, you can appeal the TAT’s decision to the High Court of Kenya. This appeal is governed by the Tax Appeals Tribunal Act, 2013, which directs taxpayers to appeal the decision within 30 days of being notified by the TAT, or within such a period that the High Court may allow.
Step #7: Appeal to the Court of Appeal
The final step of this procedure is to escalate an appealable decision to the Court of Appeal in Kenya. You should file this appeal within 30 days after being notified by the High Court, or within such a period as the Court of Appeal allows.
Common Mistakes To Avoid When Objecting to a Tax Decision
Taxpayers lose tax decision objection cases due to simple mistakes that can be avoided. These include:
- Missing deadlines: Most of the objections have a 30-day deadline after which the application becomes invalid.
- Presenting weak/dismissible grounds for objection/appeal.
- Submitting incomplete or disorganized supporting documents.
- Ignoring follow-up requests from IRO/KRA: KRA officers may ask for additional information after reviewing your case.
- Incorrect bookkeeping: KRA requests tax records to reconcile with their data. If you don’t keep accurate tax records, you won’t have facts to argue your case.
Note: The burden of proving the incorrectness of a tax decision lies with the taxpayer. This means that KRA doesn’t have a duty to defend their tax decision; it’s your responsibility to prove they are wrong, through evidence, documents, explanations, and legal arguments.
Wrapping Up
When KRA notices discrepancies in your tax records and compliance, they may initiate a tax audit or assessment. What follows is a tax decision. This tax decision is not final and conclusive. If you’re dissatisfied, the Kenyan tax laws allow you to object to the decision. This post explained the procedure of objection to a tax decision in Kenya. If you’re unsure of where to start or how to go about the objection process, our tax disputes resolution experts can help. Contact Gichuri & Partners today for the best tax disputes resolution services.
