Khalalio General Trading Company v Kenya Revenue Authority (Tax Appeal E080 of 2026) [2026] KETAT 303 (KLR) (10 August 2026) (Judgment)
The Dispute
Khalalio General Trading Company is a limited liability company. The dispute arose when the Kenya Revenue Authority (KRA) conducted a banking analysis of the Appellant’s accounts covering the period 2019 to 2021. KRA identified substantial bank credits in both Kenyan Shillings and US Dollars that were inconsistent with the Appellant’s declared income. The Appellant had declared itself as a commission agent earning low-tier commissions, but the bank credits told a different story. On 23 July 2025, KRA issued additional income tax and VAT assessments. On 28 November 2025, the Appellant objected to the assessments. On 19 December 2025, KRA issued its objection decision confirming the additional assessments totaling Kshs. 248,545,784 in Corporation Tax and Value Added Tax.
The Appeal and the Appellant’s Argument
Aggrieved, Khalalio General Trading Company lodged an appeal with the Tax Appeal Tribunal. The Appellant’s principal argument was that KRA had erroneously assessed its tax payable on the basis that it was a presumed supplier, when in the actual business realm it was a commission agent. The Appellant contended that its personal earnings were a derivation of low-tier commissions earned on an agency basis. It argued that notwithstanding the fact that supplier payments were remitted through its bank account, due diligence on the part of KRA could have unveiled the actual position that the Appellant made earnings as a commission agent and not as a supplier of goods and services. The Appellant further asserted that had KRA undertaken a thorough financial background check, it would have come to the realization that the Appellant was a commission agent, and the assessment should have been anchored on its intermittent earnings as a commission agent. The Appellant also claimed that it was a victim of an erroneous tax assessment and was undergoing financial oppression at the hands of KRA. The Appellant did not, however, file a Statement of Facts and Submissions in support of its appeal.
KRA’s Defence
KRA mounted a robust defence of its assessment. It submitted that the characterization of the Appellant as a supplier, rather than a commission agent, was not arbitrary or presumptuous, but was an inference lawfully and reasonably drawn from the available evidence. KRA stated that the Appellant’s bank accounts received substantial sums that were inconsistent with commission earnings. It explained that in the absence of any documentary evidence establishing an agency relationship, KRA was entitled to treat the Appellant as conducting business in its own capacity as a principal supplier. KRA argued that it is a settled principle of law that agency must be proved and not presumed, and that the Appellant’s bare assertion that it was a commission agent was unsupported by any agreement or financial records. KRA further submitted that the bank credits in the Appellant’s accounts, in both KES and USD, were wholly inconsistent with the income profile of a commission agent earning low commissions. It took the difference between income earned and costs to obtain the commission earned, and noted that the commission earned was not uniform for every client served during the transaction. KRA asserted that its analysis disclosed a material and persistent inconsistency between the declared income and the bank credits, spanning three consecutive tax years (2019–2021), which was not consistent with the profile of a low-income commission agent. KRA stated that the Appellant did not provide any evidence of commission agreements, transaction records, client statements, or reconciliations to prove that the earnings were commissions earned on an agency basis. Additionally, no certification, licence, or approval from the Central Bank of Kenya was provided to demonstrate that the Appellant was authorized to conduct money exchange services as alleged. KRA maintained that the assessment was issued in the lawful exercise of its statutory mandate following a properly conducted banking analysis, and that the additional assessments were lawfully raised, procedurally fair, and substantiated by credible financial data. KRA relied on the cases of Trina Kenya Ltd v Commissioner of Domestic Taxes, Republic v KRA: Proto Energy Limited, and Nasscom Limited v Commissioner of Investigations & Enforcement.
The Tribunal’s Findings
The Tax Appeal Tribunal delivered its judgment on 10 August 2026, making several crucial findings.
First, the Tribunal identified the issue for determination as whether the Respondent’s Additional Assessments of the Appellant were justified and proper in law.
Second, the Tribunal noted that in this appeal, the Respondent asserted that it was not provided with documents to enable it to vary or set aside its assessment. In a bizarre turn of events, the Appellant did not present any document before the Tribunal to prove its assertion that it had provided documents to support its objection. As it was, there was nothing on record to show that the Appellant supported its objection with relevant documents.
Third, the Tribunal reiterated that it is now settled that the burden of proof in tax matters, in the first instance, rests with the Appellant. This is the import of Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, which provides that the burden shall be on the taxpayer to prove that a tax decision is incorrect. The Tribunal relied on the case of Commissioner of Investigations and Enforcement vs Kidero (Income Tax Appeal E028 of 2020 eKLR), where it was held that the duty imposed on the taxpayer to keep records and the provisions on the burden of proof all go to support the Kenyan tax collection regime which is centered on a system of self-assessment.
Fourth, the Tribunal held that the Appellant failed to provide evidence to show that it had supported its objection with relevant documents, and that the Respondent acted in error or was wrong when it affirmed its assessments.
Fifth, the Tribunal relied on the case of Commissioner of Domestic Taxes -vs- Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) (Commercial and Tax) (8 July 2022) (Judgment), where it was stated that a presumption of correctness arises from the Commissioner’s determination or assessment, and that the presumption remains until the taxpayer produces competent and relevant evidence to support his or her position. The Tribunal found that the Appellant’s failure to provide competent and relevant evidence to support its position meant that the Respondent’s assessment remained undisturbed and justified.
The Determination
The upshot of the foregoing is that the Tribunal found and held that the Appeal lacks merit and made the following orders: (a) The Appeal be and is hereby dismissed. (b) The Respondent’s objection decision dated 19th December 2025 be and is hereby upheld. (c) Each party is to bear its own costs. It is so ordered. Dated and delivered at Nairobi this 10th day of July 2026.
Key Takeaway
The case of Khalalio General Trading Company v Kenya Revenue Authority serves as a powerful reminder that in tax appeals, the burden of proof rests squarely on the taxpayer. It is not enough to assert that you are a commission agent. The taxpayer must provide clear, specific, and verifiable evidence showing exactly what the agency relationship was, what commissions were earned, and how the bank credits reconcile with the declared income. Commission agreements, transaction records, client statements, reconciliations, and where applicable, regulatory licences must be produced. General explanations and bare assertions do not constitute compliance. A taxpayer who fails to keep records and fails to produce them when challenged cannot expect the Commissioner to act as a forensic accountant. The duty to reconcile and explain lies with the taxpayer. In this case, the amount in dispute was Kshs. 248,545,784. The taxpayer ought to have taken its time to deal with the matter in a better way. This required expertise intervention. It is a classic example of how poor record keeping catches up with businesses. An important distinction emerges from this decision: claiming to be a commission agent is not the same as proving it. A persuasive tax response should create a clear bridge from the assessment, to the disputed figure, to the reconciliation, and finally to the indexed supporting documents. Without that bridge, even genuine records may appear to be an unexplained data dump. Taxpayers should therefore accompany every evidence pack with an issue-by-issue reconciliation and document index. The Commissioner is required to consider the evidence, but the taxpayer must first explain precisely what that evidence proves.
