Real Cases, Real Result: Real-Life Examples of Tax Disputes Resolved Through ADR in Kenya. The Alternative Dispute Resolution (ADR) mechanism has been in place since 2015, when it was proposed as an efficient, voluntary, and confidential way for taxpayers to resolve tax disputes with the Kenya Revenue Authority (KRA). It was later strengthened in 2020 through the Tax Procedures Act, which provided a clear legal framework for ADR.
Over this period, KRA has successfully resolved numerous cases via ADR. According to Business Daily, the tax authority has recovered over KSh. 86 billion by settling tax disputes with firms and companies through ADR. Clearly, ADR is working remarkably well for both taxpayers and KRA. In this post, we highlight real-life examples of tax disputes resolved through ADR in Kenya. Confidentiality is a crucial part of ADR, which makes most of these cases anonymous. However, we’ve been able to pull several cases mentioned in court records, legal commentary, and KRA press statements.
Recap of How KRA ADR Works in Kenya
ADR is a legal method for resolving KRA tax disputes under Section 55 of the Tax Procedures Act. The process can be initiated by either KRA or the taxpayer. Once both parties consent, KRA appoints a facilitator, meetings are held, and if the parties reach a consensus, a binding settlement agreement is signed. Let’s see ADR in action in real life below using several examples.
Real-Life Examples of Tax Disputes Resolved Through ADR in Kenya
Here are real-life examples of KRA ADR in action in Kenya:
1. Keroche Breweries Limited vs KRA- Excise Duty and VAT Dispute
To start our list is one of the most high-profile tax disputes over the years between Naivasha-based Keroche Breweries Limited and KRA. Keroche is the second-largest beer-producing company in Kenya. It was facing a billion-shilling dispute with KRA that led to the suspension of business operations. In 2021, the two parties reached an agreement through ADR.
Keroche agreed to pay the undisputed tax amount of KSh 957 million and pay the principal tax of KSh 134 million in nine installments. This allowed the company to reopen and resume operations. Although the case reverted to litigation after Keroche defied the terms of the agreement, it’s a clear success story for ADR. Through ADR, Keroche was able to resume operations within 90 days.
2. Estama Investments Limited vs Commissioner of Investigations & Enforcement- Unnamed Tax Dispute
While ADR doesn’t create a binding legal precedent for similar cases, this Estama Investment Limited case established a lot for taxpayers, legal commentators, and the general public. In 2020, the limited company reached a consensus with the KRA Commissioner and signed an ADR settlement agreement.
Estama failed to honor that agreement. KRA filed a case at the High Court of Kenya, where the court confirmed that ADR agreements are legally binding and fully enforceable. The lesson here is that, while ADR is less formal, you are legally bound when you sign that settlement agreement document.
3. Safaricom PLC vs Commissioner of Domestic Taxes- Dispute Over Allowed Expenses
In this 2021 case, Safaricom PLC, a leading telecommunications company in Kenya, was fighting with KRA over spectrum fees. The spectrum fee is the money Safaricom pays for the right to operate on radio frequencies. It is deductible as a business expense in income tax. KRA thought otherwise. Instead of dragging the case to the Tax Appeal Tribunal (TAT), the two parties negotiated a settlement agreement through ADR. Both parties were content, and the case was resolved.
4. Osho Chemicals Limited vs KRA- VAT Refund Dispute
Most Kenyan businesses feel helpless when KRA delays tax refunds. This is useful money that can be injected back into the business for expansion or normal operations. But it’s stuck. What do most businesses do? They rush to the courts to seek help from the judiciary. But as Osho Chemicals Limited demonstrated in 2022, it doesn’t need to end in the quasi-judicial system to resolve a tax dispute.
KRA was sitting on over KSh 75 million VAT refund owed to Osho Chemicals Limited. In just 45 days after agreeing to the ADR process, Osho recovered 80% of this refund. While recovering 100% of the money would have been better, 80% is better than nothing, or dragging the case in the courts for years.
5. Export Trading Company Limited vs KRA- Excise Duty Dispute
There are situations where taxpayers take a tax dispute to court only for the courts to recommend ADR. In 2020, an excise duty dispute escalated all the way to the Court of Appeal, only for the judge to rule that the parties should have tried negotiation first.
In this case, KRA had issued a tax assessment claiming that Export Trading Company Limited had under-levied the duty. The importer disagreed with the assessment and sought justice in the TAT, the case eventually landing at the Court of Appeal. While publicly-available information doesn’t reveal if the case was resolved eventually, this case sent a clear message: taxpayers and KRA should try ADR before choosing litigation if the dispute is not a question of the law.
There Are More: KRA Has Documented Other Successful ADR Cases
Confidentiality is one of the perks of choosing ADR to resolve tax disputes. KRA honors the promise of anonymity when documenting the cases resolved through ADR. However, KRA press releases reveal ADR’s success in settling about 1884 cases between 2018 and 2024. One of the press releases reports that by 2021, KRA had resolved 319 cases through ADR. All this data paints ADR as a functioning and high-volume dispute resolution method and not a niche, experimental program.
If you are still on the fence about the efficiency of ADR, this is your sign to have more faith in it. Whether it’s a wrong tax assessment, a delayed tax refund, or any other disagreement with KRA, it’s worthy to explore ADR. Here’s a quick reminder of when ADR is appropriate:
- The tax dispute is factual and not law-driven.
- You seek a speedy resolution to resume business operations as soon as possible.
- You want the tax dispute to stay confidential.
- You’re keen on preserving your relationship with KRA.
Check out our guide on when to choose ADR for KRA tax disputes for more details.
Final Thoughts
Since its inception in 2015, ADR has resolved hundreds of KRA tax disputes. These include wrong tax assessments, differences over allowed expenses, VAT tax refunds, and excise duty disputes. We have summed up the most notable real-life examples of tax disputes resolved through ADR in Kenya. Do you need assistance with ADR services in Kenya? Contact Gichuri & Partners for a free consultation.
