Can the taxman assess tax beyond the 5 year statutory period


  • KRA carried out a review of SSKL’s financial records for the year of income ending February 2013 and issued the first additional assessment in respect of Corporation Tax on 6th September 2019. SSKL objected to this assessment through its letter dated 4th October 2019 on the grounds that KRA had not considered salaries paid out to its expatriate employees as an expense while computing its taxable income and that the cost of these employees was recharged from its head office to SSKL through an intercompany invoice.
  • In its letter dated 9th December 2019, KRA allowed the salaries and wages as expenses incurred in the production of business income but took the position that these amounts be subjected to Pay As You Earn (PAYE). KRA stated that SSKL’s explanation confirmed that the expatriates’ salaries for the period August 2012 to February 2013 had not been subjected to PAYE. KRA also deemed expenses relating to rent, cable television subscription, installation and activation fees and other miscellaneous payments by SSKL for the benefit of expatriate personnel as employee benefits and therefore subject to PAYE in the absence of an explanation.
  • KRA maintained that SSKL paid PAYE on salaries paid to its local staff but omitted to charge tax on salaries paid to expatriates and the non-cash benefits provided to them. That this was despite the fact that payroll services had been outsourced to a professional firm of accountants; BDO Kenya, for the period 2013-2017. That although section 31(4)(b) of the Tax Procedures Act, 2015 sets the time limit within which KRA may amend a self-assessment return within five years from the date of filing the return, in this instance, KRA noted that SSKL had committed gross or wilful neglect while filing its PAYE returns thus the assessment could be issued beyond the statutory period of five years. In conclusion, KRA issued PAYE assessments amounting to Kshs. 142,285,361.00 inclusive of penalty and interest.
SSKL objected to the assessment. KRA issued objection decision confirming the assessment

SSKL appealed to the TAT.

Among the grounds of appeal was that KRA had assessed tax beyond the 5-year statutory period

The TAT found that there was gross or wilful neglect by, or on behalf of SSKL in accounting for PAYE, the Tribunal also held that KRA’s right to issue a PAYE additional assessment was not limited to five years.

SSKL appealed to the High Court

In his decision on 22/03/2023, the High Court observed that:

  • The Tribunal was correct to state that the TPA does not define ‘gross or wilful neglect’ and in the circumstances, it could not be faulted for seeking and finding its ordinary meaning in the Black’s Law Dictionary which defines gross negligence as “a severe degree of negligence taken as reckless disregard. Blatant indifference to one’s legal duty, others’ safety, or their rights are examples.”
  • SSKL was guilty of blatant indifference to its legal duty in dealing with accounting for PAYE during the 19-month period between August 2012 and February 2014. SSKL’s tax affairs were being managed by reputable tax consultants and agents, then it ought to have known that under section 3(1) of the ITA, PAYE is payable on the income of a person whether resident or non-resident that accrued in or was derived from Kenya and that under section 5(1) of the ITA, an amount paid to a non-resident person in respect of employment or services rendered to an employer who is resident in Kenya or the permanent establishment in Kenya of an employer who is not so resident shall be deemed to have accrued in or to have been derived from Kenya.
  • SSKL was guilty of gross of willful neglect in accounting for PAYE during the period August 2012 to February 2014. This being the case, it follows that KRA could amend SSKL’s self-assessment beyond the statutory period allowed of 5 years and issue an additional assessment.

As such, SSKL lost

Can the taxman assess tax beyond the 5 year statutory period taxman to assess tax beyond the 5-year statutory period

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