KRA’s New Tax Introduced At Objection Decision Canceled

Case Study : Judgement Appeal NO. E1187 OF 2024 Farenheight Contractors Limited V Commissioner, Investigations AND Enforcement

Background Facts

FCL won a contract from the Turkana County Government

KRA conducted an investigation and issued an additional income tax assessment.

The case comprised of two related cases, FCL assessment and the assessment on the director Mr. RM.

FCL objected. In its subsequent Objection Decision, KRA reduced the tax but also included a new VAT assessment that was not in the original notice.

Through its tax agents, CPA David Ndiritu Mwangi T/A Hisibati consulting, FCL appealed to the TAT on three grounds. We will analyze one ground. The ground of appeal was :

KRA erred by not responding to their objection and instead issuing an additional assessment (the VAT) in the Objection Decision, contrary to the Tax Procedures Act (TPA).

FCL Arguments:

• The original Assessment Order (dated 14th May 2024) was for Company Income Tax only (Kshs 1,945,506.40).
• In its Objection Decision (dated 10th September 2024), KRA not only decided on the income tax but also confirmed a VAT assessment of Kshs 600,029.00.
• This VAT demand was not part of the original assessment that the Appellant had objected to.
• Section 51(8) of the TPA: FCL argued that this section confines the Commissioner’s role in an objection decision to only “allow the objection in whole or in part, or disallow it.” It does not permit the introduction of new or additional tax liabilities.
• Kamindi Selfridges Supermarket Limited v Commissioner of Investigations & Enforcement: The Appellant relied on this case to support the principle that KRA “cannot add figures after the Appellant has objected.
• This procedural error was so fundamental that it invalidated the entire Objection Decision.

KRA’s Arguments:

• KRA stated that FCL’s first valid objection was lodged on 14th June 2024 via iTax, not on 3rd September 2024 as FCL suggested.
• This initial objection was invalidated for lacking grounds and documentation. The Appellant then lodged a late objection on 28th June 2024, which KRA approved on 5th July 2024.
• FCL validated this late objection by submitting supporting documents on12th July 2024. KRA argued that the mandatory 60-day period for issuing an Objection Decision, under Section 51 of the TPA, began on this date.
• KRA dismissed FCL’s reference to a “3rd September 2024” objection as a “delay tactic” intended to avoid paying taxes that were already due.

Tribunal analysis & Decision:

• The Tribunal confirmed that the original Assessment Order (14th May 2024) was for Company Income Tax only. The Objection Decision (10th September 2024) introduced new liabilities for VAT and the personal income tax of Mr. R M.
• This action was a direct violation of Section 51(8) and (9) of the Tax Procedures Act. The Tribunal reinforced that an objection decision must only address the tax assessment that was originally objected to. It cannot be used to introduce new assessments.
• By doing so, KRA denied RM the right to object to these new taxes, which constitutes a breach of the right to a fair hearing.

Final Determination and Orders:

KRA’s Objection Decision dated 10th September 2024 was modified as follows:

• SET ASIDE: The assessments for VAT and the Personal Income Tax of Mr. RM were canceled. These were introduced illegally and are nullified.
• UPHELD: The assessment for Company Income Tax is confirmed