Courts should intervene sparingly in tax disputes

The tax dispute between the Kenya Revenue Authority (KRA) and the local manufacturer, Keroche Breweries Limited has been in the courts for several years.

In fact going by the recent press clarification by KRA, since the year 2006, the matter has been in the High Court, Court of Appeal and to the Tax Appeal Tribunal yet the primary dispute has not been fully resolved to date.

Keroche vs KRA cases is just but a reflection of how long commercial disputes can at times remain unresolved through court processes.

Procedural technicalities, heavy judicial workload and high expenses among other factors continue to delay resolution of commercial disputes. However, in some instances like tax disputes, aggrieved taxpayers, advocates, tax agents and over accommodating judicial officers are to blame.

Whereas I do not hold brief for the KRA, there are a number of instances where litigants and their agents have lodged cases directly in the courts through judicial review applications and constitutional petitions. Such cases may provide reliefs to the parties but only temporarily.

The attendant procedural limitations association with judicial and constitutional litigation do not permit the judges to get into merit assessment. The primary dispute, usually revolving around tax liability and quantum of the taxes, remain unresolved.

The danger is that the taxes assessed by the KRA will most likely continue to attract interest and penalties!

Many at times when the taxman (KRA) slaps a taxpayer with a tax assessment and demands payment thereof, it is highly likely that the taxpayer is liable to pay. The proper dispute is often the quantum of the assessment. There may be peripheral issues like improper procedure adopted in assessment and attempts to do the collection.

Prolonged resolution of tax cases in courts definitely affects revenue collection. It also creates a negative perception that the tax system is unfavourable to the taxpayers, which may be true.

Part of the solution to delay in resolving tax matters is a total culture change where parties, their lawyers and of course judicial officers embrace to the maximum exhaustion of alternative avenues available under the Tax Procedures Act (Act No. 29 of 2015).

That legislation provides in a consolidated form the procedural rules for administering taxes in Kenya and provides for three statutory avenues for resolving tax cases before going to court.

The first port of call for an aggrieved taxpayer is to lodge an objection to the Commissioner-General of KRA but within a period of 30 days of receiving the notification. The law requires such objection to be clearly written and to be specific on the grounds of objection.

Once filed, the commissioner is obligated to consider and render a resonated decision on the same within 60 days.

A properly-advised taxpayer is better off employing the services of a tax agent, or a lawyer or both at this early point so that the dispute is clarified at the earliest. Many taxpayers often ignore this or go it alone and it can turn out to be costly in the end.

The second avenue is to lodge an appeal to the Tax Appeals Tribunal (TAT). The tribunal hears appeals filed against tax decisions made by the commissioner and has an elaborate procedure and timelines for filing and determining such appeals.

The tribunal also has powers to take evidence on oath and can engage independent experts in resolving the tax disputes. By its very nature, the tribunal’s membership is composed of persons who have relevant qualifications and experience in taxation, audit and tax administration.

From a technical point of view, the High Court will always be very reluctant to disturb a decision of specialised tribunal on the merits of the decision made. Of course where the members get it wrong as they sometimes do, the decision will be overturned on appeal.

Where taxpayer is dissatisfied with the decision of a tribunal, a window of appeal exists for one to appeal to the High Court and eventually to the Court of Appeal.

The other important option is amicable negotiations with the KRA. One of the laudable provisions under the TPA is the introduction of Alternative Dispute Resolution (ADR) mechanism as an alternative or in addition to the judicial and quasi-judicial processes.

Perhaps drawing inspiration from the TPA, KRA itself has developed an ADR framework which encompasses not just disputes pending at the tribunal and courts but also objections before the commissioner.

To parties who have already filed cases in court, the Court Annexed Mediation (CAM) provides an alternative avenue where if the court finds it fit or where parties agree, such cases may be referred for mediation-resolution process where a court-appointed expert (mediator) facilitates an amicable resolution of the dispute.

Taxation by its very nature is compulsory levy by the government and the tax collecting agencies like KRA cannot be anyone’s favourite on account of the mandatory nature of taxes.

Nonetheless the revenue generated through taxation is a necessary evil for it enables government to run the affairs of the nation. Taxation is based on law and supported by practical circumstances. Tax disputes are therefore more than pure questions of law or pure accounting.

The statutory avenues offer a better opportunity for the tax collector and the taxpayer to listen to each other’s perspective before making a decision. The objection before commissioner may also offer the taxpayer and the commissioner an opportunity to hear each other’s perspectives better on the assessment.

A taxpayer gets opportunity to even explain the nature of his business or income, to adduce supporting documents to clarify why a tax assessment may be excessive or not due at all.

Where the tax is ascertained to be due, it is possible that the tax collector may consider waiver of interests or penalties due to the non-contentious nature of the dispute resolution and the tax payer is highly likely to comply.