Taxpayers have been put on notice after the high court issued a key judgment tightening rules for challenging the Kenya Revenue Authority tax bills.

🇰🇪 Breaking It Down

In a recent ruling, the court declared that taxpayers seeking to challenge KRA tax assessments must provide clear evidence explaining why the assessments are wrong, not leaving the burden to the authority.

The determination was made following KRA's Commissioner of Domestic Taxes appeal against a business, overturning a decision by the Tax Appeals Tribunal that had favoured the company.

The dispute arose after the taxman conducted a desk audit of the company's Income Tax and VAT returns for the period between 2017 and 2020.

📌 What You Need to Know

In documents presented in court, the audit revealed significant discrepancies between purchases declared by the company in its Corporation Tax returns and those reported in its monthly VAT returns, prompting the agency to issue additional tax assessments amounting to Ksh29.2 million.

However, the company challenged the decision before the Tax Appeals Tribunal , which ruled in its favour in November 2023, leading KRA to appeal to the High Court, arguing that the Tribunal had misapplied the rules of evidence.

During the hearing period, the court was questioned whether taxpayers should present a large volume of financial records to KRA or whether they must specifically identify evidence that reconciles the discrepancies forming the basis of the tax demand.

In its ruling, the High Court allowed KRA's appeal in its entirety , ultimately setting aside the Tax Appeals Tribunal's decision that had favoured the company.

"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 Tribunal's decision was based on a fundamental misapplication of the rules of evidence and cannot be allowed to stand," the court ruled.

It further held that a taxpayer seeking to disprove a tax assessment must do more than submit a large volume of financial records.

📰 Source: Kenyans.co.ke