CPA David Ndiritu Mwangi
Tax Disputes Resolution, Transfer Pricing,Tax Agent, Tax Advisory ,Tax Consultant,Certified Public Accountant , Business Advisor.
April 2, 2026
Case Study:Ibongia ta Quantech Consultancy v Commissioner of Domestic Taxes (Tax Appeal E713 of 2025).
Factual Background
The Appellant, a quantity surveying consultancy, was assessed additional taxes totalling Kshs. 30,650,015 for the years 2020–2022. The assessment included both income tax and VAT. The KRA’s review of the Appellant’s VAT returns revealed that the Appellant had claimed input VAT on various items. Among those, the KRA specifically identified car parts and entertainment as items that are prohibited under Section 17(4) of the VAT Act.
The Appellant objected to the assessments, arguing generally that the inputs were incurred in its ordinary course of business and that the input VAT had been correctly claimed within the permitted time under Section 17(2) of the VAT Act. The KRA confirmed its objection decision, and the Appellant appealed to the Tribunal.
The Legal Framework: Section 17(4) of the VAT Act
Section 17 of the VAT Act governs the deductibility of input tax. While subsection (1) allows a registered person to deduct input tax on taxable supplies made to or imported by the person, subsection (4) imposes specific prohibitions. It provides that no input tax shall be deducted in respect of:
- Motor vehicles except those used for the purpose of carrying goods or passengers for hire, or for driving instruction;
- Entertainment expenses;
- Goods or services used for making exempt supplies;
- And any other goods or services as the Commissioner may prescribe.
The prohibition is absolute for the listed categories. Even if the expense is incurred for business purposes, the input VAT cannot be claimed unless the taxpayer falls within a statutory exception (e.g., a commercial goods vehicle). The burden is on the taxpayer to demonstrate that the exception applies.
The Tribunal’s Analysis
The KRA’s Allegation
In its pleadings and submissions, the KRA stated that a review of the Appellant’s VAT returns showed claims for input tax on car parts and entertainment. The KRA argued that these were prohibited under Section 17(4) of the VAT Act and therefore the input VAT was rightly disallowed.
The Appellant’s Failure to Rebut
The Tribunal noted that the Appellant, in its Statement of Facts and submissions, did not specifically address the KRA’s assertion regarding the prohibited items. The Appellant made general arguments that the inputs related to its ordinary course of business and that the input VAT was claimed within the six‑month period allowed under Section 17(2). However, it produced no evidence to show that the car parts were for a qualifying commercial vehicle or that the entertainment expenses fell outside the prohibition.
The Tribunal observed:
“The Respondent, in their pleadings, mentioned that the Appellant claimed input tax on car parts and entertainment, which are prohibited as per the Act. This assertion is unbefitted by the Appellant.” (Paragraph 51 of the judgment)
The Tribunal found that the Appellant had not challenged the specific factual finding of the KRA, nor had it provided any documentation to support its position.
The Burden of Proof
The Tribunal applied the statutory burden of proof provisions:
- Section 56(1) of the Tax Procedures Act places the burden on the taxpayer to prove that a tax decision is incorrect.
- Section 30 of the Tax Appeals Tribunal Act requires an appellant to prove that an assessment is excessive or that a tax decision should not have been made.
Because the Appellant failed to adduce any evidence to counter the KRA’s specific allegations on prohibited input VAT, the Tribunal held that the KRA was justified in disallowing the input claims. The VAT assessment was therefore confirmed.
