Navigating the burden of proof in tax assessments and disputes

The burden of proof in tax cases is very different from criminal and civil cases. 

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The burden of proof in tax cases is very different from criminal and civil cases. In criminal and civil cases, it is based on the popular latin maxim Affirmanti, non neganti, incumbit probation, which simply means that ‘he who alleges must prove’.

However, Kenyan tax law provides that in the event of an audit or assessment, the taxpayer must disprove the findings of the tax authority, except in the event of alleged fraud, evasion or wilful neglect.

Unfortunately, this puts various taxpayers on the back foot, and they end up not providing the requisite information to support their tax position. In such cases, the revenue authority would issue findings based on available information and documents.

They are also at liberty to cross-reference various third-party sources, including government records, media, filed returns and information from other tax authorities.

On the other hand, taxpayers might not have the requisite documents, or the documents do not correspond to the available information.

Therefore, the inability to prove their tax position leads to tax disputes which end up being lost at the Tax Appeals Tribunal and appellate courts.

This is because the courts make a determination as to whether the revenue authority made the right decision based on information provided by the taxpayer at the time of assessment.

In making such a determination, the courts would also consider the reasonability of the request based on Article 47 of the Constitution and the Fair Administrative Action Act. Courts also consider the specific provisions of the law governing the issue under dispute.

For example, in a recent decision by the tribunal, it held that the taxpayer, in claiming input VAT, was only required to provide documents provided for under section 17 of the VAT Act, which include invoice and debit/credit notes and not any additional arbitrary requests from the tax authority.

However, in other tax heads and procedures, the Tax Procedures Act allows the revenue authority to request for full information to ascertain tax liability.

Therefore, it is important for a taxpayer to establish the applicable law in a particular assessment to determine the documents to provide and the burden of proof.

Taxpayers are also encouraged to keep a good record of their operations, including documents to support their transactions. As they say, ‘Most people do not plan to fail, they just fail to plan.’

The writer is a senior manager at Ernst & Young LLP (EY).

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