KRA Tax Appeal Tribunal vs ADR

So you’ve had a tax dispute with KRA, and it has escalated beyond the Independent Review of Objections. For most taxpayers, this is a stressful juncture because the next step may cost you time, money, and even your business reputation. We’ve learned through experience that there is no one-size-fits-all way to determine which dispute resolution method works best. Both the Tax Appeals Tribunal (TAT) and Alternative Dispute Resolution (ADR) are legitimate and legally recognized mechanisms. KRA recognizes that all tax disputes aren’t equal, thus the need for more than one option to resolve the disputes. Therefore, the real question is not which method is better, but which one is the most appropriate for your tax dispute.

Choosing the wrong method can lead to unnecessary delays, reputation damage, higher costs, and lost leverage. Most taxpayers make the mistake of choosing a dispute resolution based on fear or what worked for another taxpayer. This KRA Tax Appeal Tribunal vs. ADR comparison is a decision framework to help you decide which method suits you best. By the end of this article, you’ll know which option to choose and why.

TAT and ADR: Two Legitimate Ways to Resolve KRA Tax Disputes

We’ve already discussed both the Tax Appeals Tribunal TAT and Alternative Dispute Resolution processes at length in separate articles. To refresh your memory, TAT is a quasi-judicial method that resolves disputes through legal arguments, evidence, and statutory interpretation. On the other hand, ADR is a collaborative method where the taxpayer and KRA engage in a negotiation to reach a mutually acceptable resolution without litigation.

Both processes are recognized under the Kenyan tax laws and are governed by legal frameworks outlined in the Tax Procedures Act 2015 and the Tax Appeals Tribunal Act. They both play an important role in resolving tax disputes. Therefore, the deciding factor isn’t preference but the substance of the tax dispute. Let’s first see when each method is suitable before we do the comparison.

When the Tax Appeal Tribunal (TAT) Is Suitable

As we mentioned earlier, the TAT mechanism is quasi-judicial. Therefore, it focuses on tax disputes that are a question of law rather than calculation and tax administration. Below are instances when the Tax Appeals Tribunal is suitable:

Tax Disputes Involving the Interpretation of Tax Laws

TAT is the perfect choice when the disagreement between you and KRA stems from how tax legislation is interpreted and applied. For example:

• A particular tax legislation is ambiguous.
• You interpret statutory provisions differently from KRA.
• The tax dispute requires legal counsel or guidance on how specific sections of tax laws should be understood.

TAT decisions are public and legally grounded. They provide clarity to the taxpayer and KRA, and also act as reference points for future disputes.

Precedent-Driven or Principle-Based Tax Disputes

A principle-based tax dispute is high-risk. The outcome depends on the interpretation, application, and fairness of fundamental tax principles, rather than simple differences over facts and numbers.

Such disputes may have significant financial or operational implications, especially for the taxpayer.  Therefore, the taxpayer is willing to invest time and resources to obtain a binding determination that settles the dispute once and for all. Examples include:

• VAT exemptions and zero-rating interpretations.
• Tax disputes that contain overlapping or conflicting tax provisions.
• Corporate income tax adjustments based on statutory definitions.

Disputes Where ADR Has Failed or is Not Feasible

ADR doesn’t always solve KRA tax disputes. Sometimes, the differing parties fail to reach a mutually acceptable solution. In that case, the obvious next step is litigation via the TAT and higher courts.

Additionally, a case may stem from technical errors, miscalculation, or incorrect tax administration and still be unsuitable for ADR. This is especially true when KRA adopts a rigid approach, leaving little to no room for negotiation. In both situations, TAT is the most appropriate path.

When Alternative Dispute Resolution (ADR) Is Suitable

ADR shines where a tax dispute is technical, computational, or factual. This way, it’s something that both the taxpayer and the KRA can negotiate, with or without outside influence. Here are situations where ADR is suitable:

Tax Disputes Involving Errors or Miscalculations

Most tax disputes stem from technical errors, miscalculations, incorrect application of tax rates, and discrepancies in figures. ADR is effective for resolving such disagreements because the parties can discuss and clarify matters until they reach an agreement. Examples include:

• Withholding, VAT, and PAYE tax miscalculations.
• Technical errors arising from data entry into the iTax system or reconciliations.
• Disputes arising from documentation gaps
• Disputes caused by administrative oversights

When Seeking Faster and Cost-Effective Dispute Resolution

One of the factors that makes ADR so popular among taxpayers is its timeline. While the TAT process can go on for months and even years, ADR resolves cases faster and more effectively. According to KRA, ideally, the ADR process should take at most 90 days. Another aspect that makes taxpayers lean towards ADR is the cost-effectiveness. You don’t require any filing fees for ADR. The only fees you incur with ADR are representation costs if you hire a tax agent or an advocate.

Need to Preserve Reputation or Relationship With KRA

ADR is voluntary and unbinding for both the taxpayer and KRA. Moreover, it’s generally a private and confidential process, as opposed to the public litigation seen in the TAT and higher courts. It’s the most appropriate process for businesses and individual taxpayers seeking to preserve their relationship with KRA. Additionally, it safeguards your reputation, because third parties won’t even discover there was a tax dispute in the first place.

TAT vs. ADR: A Practical Comparison

As you can see, this comparison highlights that neither of the two methods is superior. Your choice depends on the tax dispute characteristics and suitability.

FAQs

Can a tax dispute move from ADR to TAT?

Yes, it can. The beauty of ADR is that you can always escalate the issue to TAT if ADR fails to resolve the dispute. However, moving from ADR to TAT is subject to statutory timelines and procedural requirements.

How long does the ADR process take?

ADR is generally a fast process, but the timeline varies from one tax dispute to another. Past ADR cases have taken as few as 28 days. However, the ADR framework provides up to 90 days.

Does ADR have any disadvantages?

While ADR is a useful tax dispute resolution mechanism, it’s not perfect. Its disadvantages include a non-binding precedent, dependence on KRA’s compromise, limited effectiveness for legal misinterpretation disputes, and risk of delayed escalation if negotiations fail.

What are the benefits of TAT compared to ADR?

TAT offers several benefits compared to ADR. These include a legally binding decision, an authoritative interpretation of tax laws, procedural fairness and structure, and independence from KRA.

Final Words

Both TAT and ADR are essential mechanisms for resolving KRA tax disputes. Instead of viewing them from a competing standpoint, look at them as complementary tools designed for different types of disputes.

TAT best applies where the dispute stems from a misinterpretation of tax laws, while ADR effectively resolves technical, computational, and administrative errors. If you are torn between TAT and ADR, we can provide professional assistance to help you choose the best option for your specific tax dispute. Contact Gichuri & Partners for a free consultation.