Taxpayers seeking to dispute Kenya Revenue Authority tax assessments now face stricter evidentiary requirements following a new High Court judgment.
The court ruled that taxpayers must provide clear and specific evidence showing why KRA’s assessment is incorrect instead of leaving the authority to identify the errors itself.
KRA Wins Appeal Against Business
The dispute began after KRA conducted a desk audit of a company’s Income Tax and VAT returns covering the period between 2017 and 2020.
During the audit, KRA identified major differences between purchases declared in the company’s Corporation Tax returns and those reported in its monthly VAT returns.
The discrepancies prompted the tax authority to issue additional tax assessments worth Ksh29.2 million.
Tribunal Initially Sided With Company
The company challenged the assessment before the Tax Appeals Tribunal. In November 2023, the Tribunal ruled in favour of the company, prompting KRA’s Commissioner of Domestic Taxes to file an appeal at the High Court.
KRA argued that the Tribunal had misapplied the rules governing the burden of proof in tax disputes.
Court Rejects “Unstructured” Evidence
During the appeal, the court considered whether a taxpayer can simply submit a large volume of financial documents or must specifically identify records that explain the discrepancies highlighted by KRA.
The judge rejected the approach taken by the Tribunal and allowed KRA’s appeal in full.
“By holding that such unstructured data presentation shifted the burden back to the state, the Tax Appeals Tribunal committed a profound error of law,” the court stated.
The judgment overturned the Tribunal’s earlier decision and restored KRA’s position in the dispute.
Taxpayers Must Reconcile Discrepancies
The court emphasised that taxpayers must do more than submit bundles of invoices, receipts and financial statements.
According to the ruling, a taxpayer must present evidence that directly explains and reconciles the discrepancies identified by KRA. The taxpayer must also use relevant documentation to demonstrate why the assessment is inaccurate.
Wider Implications for Tax Disputes
The decision is likely to have significant implications for businesses and individuals challenging KRA assessments.
Tax experts say the ruling strengthens KRA’s position in future disputes because taxpayers will now need to prepare detailed reconciliations and targeted supporting evidence before filing appeals.
The judgment also signals that courts expect taxpayers to take a more active role in disproving tax assessments rather than relying on KRA to interpret large volumes of financial records on their behalf.
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