So you’ve been disputing a tax assessment with KRA, and the time has come to proceed beyond the objection stage. When it comes to escalating a tax dispute beyond this level, taxpayers have to consider alternative dispute resolution and litigation at the Tax Appeals Tribunal (TAT). The next big question becomes procedural: do I escalate the case to the TAT or pursue the Alternative Dispute Resolution (ADR)?
And while many taxpayers approach this as a benefits-versus-disadvantages comparison, that’s not the best way to choose. We have already compared TAT vs ADR at length, which gives you the pros and cons of both paths. Additionally, we have highlighted the benefits of settling KRA disputes through ADR. However, this approach oversimplifies the choice. Instead of seeing ADR as a cheaper and faster substitute for litigation, you should approach it as a strategic procedural decision.
The better question should be: What is the nature of my tax dispute, and which dispute resolution philosophy is technically suited to resolve it? In that regard, it becomes a question of technical compatibility and an appropriate dispute management model, and not a pros vs cons discussion. By the end of this post, you’ll understand why and when to choose ADR over the Tax Appeals Tribunal for KRA disputes.
First Things First: Understanding the Nature of Your Tax Dispute
Before choosing between ADR and the TAT path, you need to understand and classify your tax dispute. Here are the broad categories of most KRA tax disputes:
- Pure questions of statutory interpretation.
- Fact-driven tax disputes arising from the audit findings.
- Documentation or reconciliation gaps.
- Disagreements over transfer pricing or valuation.
- Penalty and interest exposure disputes.
The best path depends on structural characteristics and not preference. ADR is collaborative, while TAT is adjudicative. It prioritizes mutual resolution over determination. To determine if ADR is good for your dispute, understand the philosophical differences between ADR and TAT:
- ADR seeks a settlement while TAT seeks a decision.
- ADR is flexible, whereas TAT imposes strict procedural timelines and evidentiary rules.
- ADR manages exposure while TAT manages liability.
- ADR outcomes are confidential and consensual, while TAT outcomes are public and precedential.
With that in mind, let’s see some of the situations where it’s appropriate to choose ADR over the Tax Appeals Tribunal for KRA disputes.
When to Choose ADR Over the Tax Appeal Tribunal for KRA Disputes
Here’s when to choose ADR over TAT:
The Dispute is Fact-Driven, Not Law-Driven
Fact-driven tax disputes often need a collaborative review between the two disputing parties: the taxpayer and KRA. If you can introduce documentation, agree upon reconciliations, and correct computational errors, then choose ADR. In fact-driven disputes, the taxpayer can confirm that:
- Certain expenses were genuinely incurred.
- Documentation is available to support input VAT claims.
- Income was properly declared.
- The gaps between iTax filings and financial statements can be reconciled.
Reconciliation and Negotiation Can Resolve the Issue
If the core of the tax dispute is computational errors and evidentiary clarification, a discussion between the taxpayer and KRA might be appropriate. ADR is the perfect reconciliation platform, letting both parties interrogate the working papers, clarify the audit methodologies, and align figures. The Tax Appeals Tribunal cannot negotiate figures. It can only determine them. In that case, ADR is best suited because it provides a platform for comparing figures and reaching a consensus. Examples of cases that need reconciliation and negotiation include:
- Cases with variance between customs values and declared values.
- Disallowance due to missing schedules.
- Mismatches between PAYE and withholding tax.
- Disagreements over penalty calculation.
If the main issue is computational rather than legal, ADR is more efficient.
Business Continuity is Top Priority
As we mentioned earlier, ADR is a strategic dispute management model. Businesses whose top priority is continuity lean towards negotiations rather than litigation. Too much is at stake with litigation. The case may take too long and disrupt normal operations, accounts might be frozen, there could be enforcement action, and so on. ADR provides a more controlled environment, where the matter is resolved while preserving the reputation and operational stability of the business, and also the relationship with KRA. Choose ADR if:
- The disputed tax amount affects business cash flow.
- Your business relies on the tax compliance status for government contracts or investor confidence.
- There is sensitivity around public exposure of your business.
- There is a risk of enforcement action.
When Not to Choose ADR Over TAT for KRA Disputes
ADR is a great path for settling KRA disputes. It is faster, more flexible, and less adversarial. That said, it isn’t always appropriate. Some cases require litigation at the Tax Appeals Tribunal. You shouldn’t use ADR if:
- The dispute requires an authoritative interpretation of tax laws.
- The dispute may set an industry precedent and serve as a novel case for future disputes.
- A constitutional or statutory challenge is evident.
- The dispute is a question of the law, and its interpretation
Strategic Considerations Before Choosing ADR for KRA Disputes
As we said earlier, approaching ADR as a mere alternative to TAT is shallow. You must make strategic considerations before choosing the dispute resolution method. Here are the key considerations to make before opting for ADR:
- Quantum of the tax in dispute: While ADR is attractive commercially, it may be risky when the disputed amount is high value. Tax disputes involving millions of shillings may require a binding legal determination rather than a settlement.
- The strength of your documentation: ADR is only favorable when you can produce documentation to support reconciliation. If you don’t have strong documentation, you might be better off with adjudication.
- Your risk appetite: Do you prefer full exoneration in exchange for long hours at Tribunal hearings, or a fast, negotiated settlement for cashflow and operational stability? This is where preference comes into play.
- Relationship with KRA: Do you have a sensitive relationship with KRA marked by regular audits and constant monitoring? ADR might preserve the already shaky relationship and give you a chance to prove yourself.
- Time Sensitivity: Does the resolution timeline affect your business in other ways, such as financing, licensing, or procurement? ADR is faster and offers procedural flexibility; thus would be the most appropriate.
Final Thoughts
Choosing ADR over the Tax Appeals Tribunal for KRA disputes is not a question of which method is better, but which one is best suited for your type of dispute. ADR delivers favorable outcomes where practicality and negotiated exposure management carry the weight of a dispute. On the other hand, TAT delivers a formal legal determination.
A seasoned tax advisor can help assess the merits, risk profile, and commercial implications of both ADR and TAT before committing to either option. If you are at a crossroads between ADR and TAT, our team can help you choose the right path for your case. Contact us today for professional assistance.
