What Kenyan Businesses Need to Know About Tax Disputes with KRA

Sometimes you see a KRA tax assessment coming, and sometimes you don’t. When KRA officers have been on your neck auditing your tax records, you anticipate their findings. But other times, you file your tax returns like you always do, only to get a Notice of Tax Assessment in your inbox.

One fact remains: KRA tax assessments aren’t random.

There are triggers behind them, including data discrepancies, inconsistent tax returns, and information from third parties.

Receiving a tax assessment, whether expected or unexpected, is alarming.

It arrives with a deadline attached and expectations to fulfill your tax obligations. The language may be technical and full of legalese, causing panic.

But there is no need to panic. Kenyan tax laws give taxpayers a structured legal pathway to challenge KRA tax assessments.

Understanding this pathway, from the moment a dispute arises to when it’s resolved, can help you stay on top of your relationship with KRA and protect your interests as a business owner.

What Counts as a Tax Dispute with KRA?

What’s a tax dispute?

KRA has made a tax decision. You’ve received the decision via email, iTax, or any other channel, and upon reviewing it, you disagree with it wholly or partly.

You intend to challenge it because, based on your records and the applicable tax laws, you believe KRA is wrong or has made an error.

That is what counts as a tax dispute with KRA.

A tax dispute with KRA is more than a disagreement over a tax bill. It’s a formal conflict over a tax decision and follows specific procedures and timelines.

Why Getting it Right Early Matters

What you do in the first few days after receiving a tax assessment affects the trajectory of your dispute with KRA more than you can imagine.

Timing determines whether you retain your right to challenge the tax dispute or not.  The 30-day deadline is a critical part of the objection process, and filing after the deadline automatically takes away your legal power as a taxpayer.

You might get an extension if you have a good reason for the delay, but you don’t want to find out whether yours counts as a good reason or not when the stakes are already high, do you?

Because the early days of a KRA tax dispute are procedure- and deadline-driven, most businesses seek professional assistance at this stage. Experts like Gichuri & Partners’ KRA dispute resolution team work with these businesses to help them avoid early missteps that could narrow their legal options.

Step 1: Understanding the Tax Assessment

You can’t challenge what you don’t fully understand. Otherwise, you risk wasting your time and resources without changing the outcome of the dispute.

In the Notice of Assessment, KRA explains the basis of their tax decision.  Review the following:

• The tax period.
• The tax type, i.e, Value Added Tax (VAT), corporate tax, etc.
• The reasoning behind the tax assessment.
• The figures involved.
• The records or transactions being questioned.
• The penalties and interest included.

With this knowledge, you can respond directly to everything KRA said in the assessment. Remember, this is a legal process based on facts and applicable tax regulations rather than a general sense that the assessment could be wrong.

Step 2: Filing a Formal Tax Objection

So you disagree with the tax assessment? What’s next?

You need to file a Notice of Objection to the KRA Commissioner. As soon as you receive the tax assessment, the clock starts ticking. You have a limited window (30 days) to legally lodge your objection via iTax.

The deadline is not the only parameter that determines the validity of your objection. KRA considers other aspects, including:

• Clear and concise grounds of objection.
• Supporting documentation to back up your claims.
• Must’ve paid the undisputed tax, if any, or made arrangements to pay.

Step 3: What Happens Next? Review and Alternative Resolution Routes

Once you’ve filed your tax objection, KRA reviews it. But how can the same KRA that issued the tax decision review your tax objection? Won’t there be a bias or conflict of interest?

This is where the Independent Review of Objections (IRO) comes in. It’s an independent department within the KRA that reviews both the taxpayer’s and KRA’s arguments to determine who is wrong and who is right.

After reviewing your objection, the IRO will prepare a report. This report becomes the basis of the objection decision issued by the KRA Commissioner within 60 days.

If the Commissioner doesn’t issue an objection decision within this window, your objection is deemed allowed by law.

If the tax dispute remains unresolved at this stage, you can explore the alternative dispute resolution (ADR) process. This is a voluntary mediation process between KRA and a taxpayer to solve a tax dispute outside the court/tribunal system.

ADR is more flexible, timely, and cheaper compared to litigation through courts and the Tax Appeals Tribunal (TAT). However, it’s not suitable for every tax dispute. This is another juncture where business owners seek professional assistance to determine the best way forward.

Step 4: Escalating Further- The Tax Appeals Tribunal Process 

KRA has issued the objection decision, and you still disagree with it. You’ve tried ADR, and the negotiations didn’t resolve the dispute.

The next step is escalating the matter to the Tax Appeals Tribunal. This is an independent and specialized “tax court” that settles tax disputes between KRA and taxpayers.

Filing a case at the TAT is a structured and formal process. There are deadlines, procedural requirements, and guidelines that must be adhered to.

Interestingly, the work done during the objection process matters at the appeal stage. The grounds of objection, supporting documents, KRA tax assessment, and objection decision all play a key role in the final judgment.

For this reason, you shouldn’t treat the objection process as a mere response of disagreement but as a key stage that might affect your case in the event it escalates to the Tribunal.

Common Mistakes Businesses Make That Complicate KRA Tax Dispute Resolution

Kenyan businesses make the following common mistakes that stand in the way of resolving tax disputes with KRA:

• Missing Deadlines: The 30-day window is a strict timeline; you miss it, and your tax objection becomes invalid. Some businesses have even appealed to the TAT only to lose the case because the objection was filed after the deadline.

• Weak evidence/Supporting Documents: It’s your burden to prove how KRA’s tax decision is wrong. If your records and supporting documents are sketchy, your argument won’t succeed.

• Vague Grounds of Objection: You must understand KRA’s tax assessment, point out the exact statements you disagree with, and give explanations as to why you disagree.

• Handling Complicated Tax Disputes Alone: While a taxpayer can handle some of the simple tax affairs alone and succeed, complex matters require a tax expert. Consider hiring a tax attorney or registered KRA tax agent when the case is complex.

Tax Disputes Are Manageable, But Only With the Right Approach

The key to resolving tax disputes with KRA is to review the assessment carefully, act early enough, and back up your arguments with solid supporting documents. Every stage follows a defined process with procedural requirements and timelines. With the right knowledge and support, it becomes easy for businesses to navigate tax disputes in Kenya.

Read Also: KRA Pushes to Cut Tax Dispute Resolution from 120 to 90 Days Through Private Sector Reforms