The first day of April 2015 ushered in a new dispensation governing the resolution of tax disputes in Kenya. The date marked the entry into force of the Tax Appeals Tribunal Act, 2013, which established the Tax Appeals Tribunal.
Although the constitution of the tribunal was a welcome development, the current members’ terms expired in April 2018 and no appointments have been made, rendering it effectively moribund.
Since then, the resulting backlog of pending disputes has had a significant impact on tax collection and taxpayers alike.
One of the hallmarks of a sustainable business operating environment is the existence of an effective dispute resolution process for businesses, including mechanisms for resolving tax disputes. The tax tribunal interprets tax issues, sets precedents and checks the powers of the Kenya Revenue Authority (KRA).
Without legal precedents from the tribunal, the jurisprudence of tax law cannot be developed and a lacuna in judicial interpretation creates uncertainty for taxpayers.
The tribunal is the first judicial body responsible for hearing and determining appeals filed against any tax decision made by the KRA before any appeal can be made to the High Court.
As such, it is now nearly impossible to resolve any tax dispute legally without commencing dispute resolution at the tribunal.
Prior to the Act, Kenya’s tax dispute resolution process had been criticised mainly on the basis of a perceived lack of independence.
Given the state of affairs at the tribunal today, taxpayers are left wondering which is worse: a lack of independence or a total lack of activity.
The Cabinet Secretary for the Treasury and Planning is responsible for appointing members of the tribunal.
The delay has baffled many tax practitioners and taxpayers, and caused a huge backlog of pending cases.
While the Act requires the tribunal to hear and determine an appeal within 90 days from the date of the appeal, it will likely take many years for this backlog to be disposed of even if tribunal members were appointed immediately.
As of now, the tribunal is only left with a chairperson, who cannot hear and determine cases alone and whose term is due to expire on April 1, 2020.
The delays and backlog of pending cases at the tribunal deny the government much-needed tax revenue. Indeed, the role of the tribunal in resolving tax disputes and enhancing tax collection cannot be over-emphasised.
Pressure to collect revenue has seen the KRA resort to extra-legal tax collection measures, including detention of goods at the ports and the issuance of agency notices for cases languishing at the tribunal.
These measures have been routinely declared illegal by the High Court.
Furthermore, the delay in constituting the tribunal membership has created unnecessary uncertainty for taxpayers whose cases are pending.
While the promotion of the alternative disputes resolutions mechanism by the KRA is a laudable initiative, it cannot replace an independent statutory-mandated judicial body as the primary arbiter of tax disputes.
The delay has also prompted a rethink amongst tax professionals on the management of the tribunal as well as the appointment process.
The tribunal has all the makings of a court of law in terms of how it dispenses its mandate through procedures and setting.
Moreover, orders of the tribunal are only appealable to the High Court. It is arguable that appointment to the tribunal should follow a similar process as for the appointments of other judicial officers. Such a process could inspire more focus and attention to the administration of the tax tribunal.
This process of appointment would also dispel the ever-present fear of bias. Currently, members of the tribunal are appointed by the Executive, who is always the respondent in matters arising before the tribunal.
Indeed, a report by the Kenya Law Reform Commission on the “Review of rationale for establishment of Tribunals in Kenya” identified appointments by the Executive as a shortcoming and having a negative effect on the independence of tribunals.
To resuscitate the tax tribunal, it may therefore be necessary for the management — including the appointment of its members — to be transferred from the Treasury to the Judiciary, whose key mandate is the enhancement of an independent working dispute resolution process.
It’s time to take action and resolve the impasse so that taxpayers can proceed with disputes and resolve uncertainty.
Mukora is Partner and Kimotho is a Senior Associate with PwC Kenya’s Tax Services practice.