- Resolving tax disputes can be an expensive and time-consuming process for taxpayers.
- However, Alternative Dispute Resolution (ADR) offers a chance for a shorter and less costly resolution of disputes.
- In ADR, negotiation is often overlooked because of its apparency.
Resolving tax disputes can be an expensive and time-consuming process for taxpayers. However, Alternative Dispute Resolution (ADR) offers a chance for a shorter and less costly resolution of disputes.
In ADR, negotiation is often overlooked because of its apparency. In negotiation, the parties work together to come to a compromise without the assistance of an impartial third party. On the other hand, the arbitration method is usually governed by the Arbitration Act and utilises the help of a neutral third party. As opposed to arbitration, mediation is an informal and non-adversarial process where an impartial mediator encourages and facilitates the resolution of a dispute between two or more parties.
One of the main differences between arbitration and mediation is that in mediation, the mediator does not make any decision for the parties. The mediator assists the parties to agree on an acceptable settlement of the issues in dispute. It is for this reason that the Kenya Revenue Authority (KRA) has adopted mediation as an option for tax dispute settlement.
ADR is usually a less confrontational alternative to the court system. Being a voluntary and participatory process, ADR gives the parties not only the option to choose the forum but also the ability to control the process.
It is also less formal than court thus more flexible in its processes. ADR is also confidential, cost-effective and often yields speedier settlements.
The ADR is anchored in Article 159 of the Constitution and entails a wide range of issues including reconciliation, mediation, arbitration and traditional dispute resolution mechanisms.
It is also provided for in various tax statutes, including section 28 of Tax Appeals Tribunal Act, 2013, Section 55 of Tax Procedures Act, 2015 as well as the recently enacted Tax Procedures (Settlement of Tax Disputes Out of Court or Tribunal) Regulations 2020 that sets out the procedure for ADR.
The Tax Procedures Act provides for the process of objecting to a tax decision including an assessment, a refund decision and demand for a penalty. Under the Act, a taxpayer who wishes to dispute a tax decision is required to first lodge a notice of objection to the decision, in writing, with the commissioner within 30 days of being notified of the decision, before proceeding under any other written law. Where a notice of objection has been validly lodged within time, the commissioner considers the objection and decide to allow the objection in whole or in part or disallow it.
Where a taxpayer is aggrieved with the objection, the taxpayer has a right to appeal at Tax Appeals Tribunal (TAT) within 30 days. That notwithstanding, parties may at any time during the proceedings, apply to the TAT to be allowed to settle their dispute out of the TAT. The tribunal is obligated to grant such a request on such conditions as it may impose.
An aggrieved party form the decision of the TAT and has a right to appeal to the High Court and the sequence continues to the Court of Appeal and subsequently to the Supreme Court of Kenya.
The Tax Procedures Act also provides that where a court or the TAT permits the parties to settle a dispute out of court or the tribunal.
The settlement shall be made within 90 days from the date the court or the TAT permits the settlement.
However, where parties fail to settle the dispute within the said 90 days, the dispute shall be referred back to the Court or the TAT that permitted the settlement.
The Tax Procedures Regulations 2020 that came into force on June 29, 2020, also provides that where a tax dispute has been permitted to be settled out of court under TPA, or the TAT Act 2013, the settlement shall be done under the said regulations.
It is also important to note that all tax disputes can be resolved through ADR unless the settlement would be contrary to the Constitution, tax laws or any other written law, the dispute involves technical interpretation of the law, there is evidence that the taxpayer has committed fraud in relation to tax or the parties to the tax dispute have previously failed to settle the tax dispute out of court or tribunal.