Taxpayers in Kenya have a real fear when it comes to receiving random tax decisions from KRA. You’ll be carrying on your business as usual, paying your taxes religiously, only to receive a notice from KRA.
It’s scary because you might do everything right and produce supporting documents, only for the case to be dismissed or the objection rejected. The burden to prove KRA wrong can be overwhelming. For example, in 2018, a private company, Osho Drappers Limited, lost a tax objection case that went all the way to the Tax Appeals Tribunal (TAT).
The taxpayer was objecting to a tax decision whereby KRA disallowed input VAT claimed on certain purchases. On the other hand, KRA maintained that Osho Drappers Limited was transacting with a supplier under fraud investigation. It was possible that the invoices and receipts did not reflect the real underlying dealings.
The case escalated to the TAT, and it was dismissed. TAT ruled that an invoice is not enough to claim input VAT. The taxpayer had a duty to show that there was an actual purchase, which they failed to do. This case is one example of how demanding tax objections in Kenya can be. We prepared this detailed guide to show you how to handle tax objections in Kenya.
Quick Overview of What To Do After Receiving a Tax Decision/Notice
Assuming you have received an unfavorable tax decision from KRA, what do you do next? Here is a quick checklist of what to do:
- Carefully read the notice/tax decision.
- Note the date- objections have deadlines, so you should note the date served with the notice.
- Preserve the notice- store the letter in a safe place and take a screenshot of the email or iTax notification.
- Call your tax consultant if unsure of what’s expected of you.
How to Handle Tax Objections in Kenya
Tax decisions from KRA are not final and conclusive. The Tax Procedures Act allows taxpayers to object to any decision with which they disagree on legal grounds. Before we get into the step-by-step process of handling a tax objection, let’s talk about the 30-day rule and timeline.
Tax Procedures Act 30-Day Rule
The most important rule in KRA tax objections is the 30–day rule under the Tax Procedures Act 2015. A taxpayer has 30 days to object to an aggravating tax decision. After this timeline, any objection is invalid. While there are limited opportunities to pursue the case after this deadline, missing the deadline makes the tax assessment and KRA decision final and conclusive. Let’s get into the steps of handling tax objections in Kenya.
Step #1: Read the Tax Decision and Identify the Objection Grounds
This is where the real work is, and if you are unsure, it’s always wise to consult a tax consultant. As we have disclosed before, the burden of proof lies with you, the taxpayer. So, you must read the tax assessment carefully and identify legal and solid grounds for the objection. Here are tips to come up with great objection grounds:
- Confirm the type of assessment, e.g, additional assessment, late payment, VAT objection, etc.
- Identify the exact aspect under dispute- disallowed input VAT, late filing, under-declaration of tax, etc.
- Refer to your tax records and KRA calculations to see where the dispute is arising.
- Read KRA’s explanation and reasoning because this is the basis of your tax objection.
- Make a list of clear grounds. They should be short, concise, and numbered. These are reasons why you believe KRA’s tax decision is incorrect.
Step #2: Gather Evidence that Backs Up Your Claims
Now that you’ve stated your grounds for objection in step 1, it’s time to back it up with evidence. Gather relevant documents like sales invoices, tax records, bank statements, contracts, and KRA email correspondence.
Save these documents as PDFs ready for upload via iTax. Also, use self-explanatory labels/names such as ‘input VAT evidence’ and ‘bank statements showing loan deposit’.
Tip: Match every ground with a document that supports it. This ensures you include all supporting documents, further solidifying your objection.
Step #3: Write a Letter of Objection (KRA objection Letter)
This is the formal Notice of Objection. The letter is primarily sent to KRA via the iTax portal. If some documents can’t be uploaded via the portal, you can send them to KRA via the regional Independent Review of Objections (IRO) offices. A good letter of objection contains the following:
- Grounds of objection
- Facts and explanations of your objections
- Supporting documents
- Relief sought from the KRA Commissioner
For more help with writing an objection letter, check out our guide on how to write an objection letter-it includes a sample letter!
Step #4: Submit the Tax Objection
KRA only accepts submissions via the iTax portal. To submit a tax objection, go to the KRA portal and navigate to Assessment Disputes>Notice of Objection. Following a successful submission, you’ll receive an Acknowledgement receipt. Save this receipt.
That’s all. You can relax and wait for KRA’s objection decision, which should come within 60 days.
Note: Under Section 51 of the Tax Procedures Act, an objection is deemed allowed if the KRA Commissioner doesn’t respond within 60 days.
Step #5: Track and Follow Up for KRA’s Response
You still need to look out for KRA’s response after submitting your objection. KRA might respond with a new decision, request additional documents, etc. The response can be phone calls, emails, or formal letters. Keep a record of all correspondence with KRA. If you don’t get a response within 60 days, contact them for clarification. Otherwise, KRA’s outcomes can be:
- The objection is allowed fully.
- The objection is allowed partially, with amendments.
- The objection is rejected completely.
Final Step- Next Step After KRA’s Objection Decision
This final step depends on KRA’s objection decision and your reaction. If the objection is allowed, your dispute with KRA ends there. Yours is to follow up to ensure any penalties, interests, and other tax liabilities have been withdrawn. On the other hand, if the objection decision is not satisfactory, you have two options:
- To concede defeat and honor KRA’s tax assessment demands.
- Appeal the case to a higher authority- TAT<High Court<Court of Appeal.
Appeals to the Tax Appeals Tribunal
You have until 30 days after the KRA objection decision to file an appeal with the TAT. This process includes:
- Filing a Notice of Appeal via iTax.
- Filing a Memorandum of Appeal (MOA).
- Submitting Statement of Facts.
- Serving the KRA Commissioner with the appeal notice.
Check out our guide on how to file an appeal application for more information.
Other ways to escalate the case beyond the TAT include:
- Alternative Dispute Resolution (ADR)- an out-of-court process to solve tax disputes with the KRA.
- Appeals to the High Court of Kenya- if you disagree with the TAT’s ruling.
- Appeals to the Court of Appeals- if you disagree with the High Court’s decision.
Final Thoughts
Handling tax objections in Kenya follows set guidelines, requirements, and timelines. It’s critical to follow these requirements to the letter to avoid losing a tax dispute to KRA. It is also wise to engage a tax agent when handling a tax objection. They will advise you on the best way forward, help you draft a valid objection letter, follow up the application on your behalf, and represent you if the case ends in litigation. Gichuri & Partners is a registered tax agent in Nairobi, helping taxpayers all over Kenya handle tax disputes with KRA, including tax objections. Contact us to learn how we can help you.
