Case Reference: Inter County Accident Assessors Ltd v Commissioner of Domestic Taxes (Tax Appeal E1224 of 2025) [2026] KETAT 328 (KLR) (28 August 2026)
Background of the Case
Intercounty Accident Assessors Limited is a company whose principal activities include accident assessment and claim valuation. In the ordinary course of its business, the company provides assessment services to clients who, upon payment, issue withholding VAT certificates as evidence of the tax deducted at source. What should have been a routine compliance check turned into a nightmare for the company when the Kenya Revenue Authority (“KRA”) flagged its records for the period 2019 to 2023. The KRA noted significant discrepancies between the income declared by Intercounty and the income implied by withholding VAT certificates issued by its customers. Additionally, there were inconsistencies between the employment costs shown in the company’s audited financial statements and the emoluments declared in its PAYE returns.
The KRA conducted a thorough review and raised additional assessments totaling Kshs. 24,537,172 across four tax heads: Income Tax (Company) at Kshs. 14,729,491, PAYE at Kshs. 455,681, Withholding Taxes at Kshs. 58,907, and VAT at Kshs. 9,293,093. A tax demand notice was issued on 27th June 2025, to which Intercounty lodged a timely objection on 11th July 2025. Following the objection, the KRA issued its objection decision on 4th September 2025, confirming the assessments in full. Aggrieved by that decision, Intercounty lodged an appeal with the Tax Appeal Tribunal on 30th October 2025.
The Discrepancies That Triggered the Assessment
The KRA’s assessment was founded on two principal discrepancies. First, Intercounty’s declared income was substantially lower than the income derived from grossed-up withholding tax and withholding VAT certificates. The KRA argued that the grossed-up withholding certificates should equate to the sales in that period, and any variance ought to be explained and, if not, charged accordingly. Second, there were inconsistencies between the employment costs shown in Intercounty’s audited financial statements and the emoluments declared in its PAYE returns.
The KRA requested reconciliations of declared income with VAT returns and grossed-up certificates, reconciliations of employment expenses with PAYE returns, and reconciliations of withholding taxes payable. Despite these requests, Intercounty only provided bank statements, payrolls, sales ledgers, rent receipts, and loan statements—documents which the KRA maintained were not applicable to the specific discrepancies identified. The KRA noted that the requested records and documentation were not availed for review despite emails and phone reminders.
Intercounty’s Case
Intercounty raised two principal grounds of appeal before the Tribunal. First, it argued that the KRA had improperly relied on withholding VAT certificates that could not be traced in its books, and contended that using such certificates to determine revenue was contrary to the VAT Act. Second, Intercounty argued that the assessment was punitive and unfair because it disregarded operational costs that any business must incur, and asserted that it was following up with customers to reverse the disputed certificates.
The company further contended that the tax charged was punitive and unfair since the KRA assumed it did not incur any cost during its normal operations. It argued that the additional assessment was not considerate since no business operates without incurring cost. Intercounty prayed that the objection decision be annulled, the appeal allowed with costs, and any other orders the Tribunal deemed fit.
KRA’s Defence
The KRA defended its objection decision on several grounds. It maintained that Intercounty had under-declared its income when compared with income derived from grossed-up withholding tax and withholding VAT certificates. The KRA argued that the Appellant only provided a few documents, which could not explain the variance and were not sufficient to prove that the expenses were incurred in furtherance of the business.
The KRA invoked Section 23 of the Tax Procedures Act, 2015, which imposes the responsibility on taxpayers to maintain and provide all material documents required by the Commissioner in order to ascertain what taxes were due and payable. It further relied on Section 24(2) of the Tax Procedures Act, under which the Commissioner is not bound by a taxpayer’s returns and may assess a taxpayer’s tax liability using any information available. The KRA also invoked Section 31 of the Tax Procedures Act, which authorises the Commissioner to make additional assessments based on the available information to the best of its judgment.
The KRA further relied on Section 54A(1) of the Income Tax Act, which requires any person carrying on a business to keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds, contracts and vouchers which, in the opinion of the Commissioner, are adequate for the purpose of computing tax. Finally, the KRA urged that Intercounty had failed to discharge the burden of proof imposed by Section 56(1) of the Tax Procedures Act, Section 30 of the Tax Appeals Tribunal Act, and Section 107 of the Evidence Act.
The Tribunal’s Analysis
The Tribunal carefully reviewed the rival pleadings and documentation. The central question was whether the KRA erred in confirming the taxes assessed upon Intercounty. The Tribunal noted that Section 23(1) of the Tax Procedures Act obliges a taxpayer to maintain documents required under a tax law, including records that enable the Commissioner to ascertain the taxpayer’s tax liability. Similarly, Section 54A(1) of the Income Tax Act provides that a person carrying on business shall maintain records of receipts, expenses, goods purchased and sold, accounts, books, deeds, contracts and vouchers that, in the Commissioner’s opinion, are adequate for computing tax.
The Tribunal observed that under Section 24(2) of the Tax Procedures Act, the Commissioner is not bound by a taxpayer’s returns and may assess liability using any information available. Further, Section 31(1) authorises the Commissioner to amend an assessment by making such alterations or additions as the Commissioner considers necessary. The Tribunal found that the KRA was therefore entitled to compare Intercounty’s declared income and VAT with third-party information available through withholding tax and withholding VAT certificates.
However, the Tribunal emphasised that withholding certificates are not, by themselves, conclusive proof of an undisclosed sale. They are, however, prima facie third-party evidence of payments made, or taxable supplies transacted with the taxpayer. Once discrepancies were disclosed, the taxpayer was required to provide a credible reconciliation. A proper reconciliation would have identified, certificate by certificate: the customer who issued the certificate; the underlying invoice or contract; the taxable value and VAT component; the relevant accounting period; whether the amount had been declared; any duplicate, erroneous or reversed certificates; and supporting correspondence, credit notes or other evidence from the customer and the KRA.
The Tribunal found that Intercounty’s assertion that it was following up customers for reversal of certificates was not supported by the alleged correspondence, reversal requests, credit notes, or confirmations from the affected customers. Similarly, the bare assertion that invoices had been supplied was not accompanied by a schedule reconciling those invoices to the specific certificates and variances relied upon by the KRA.
The Tribunal further found that a general assertion that a business must incur expenses is not evidence of deductible expenditure. A taxpayer claiming expenditure must demonstrate both that the expenditure was incurred and that it was wholly and exclusively incurred in the production of income. Intercounty did not provide a reconciliation of the disputed income to its expenses, nor did it link the supplied records to the tax heads and variances under review.
The Tribunal applied the established principle that in tax matters, the taxpayer has a duty in law to discharge the burden of proof. Section 56(1) of the Tax Procedures Act provides that “in any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect”. Further, Section 30 of the Tax Appeals Tribunal Act provides that “in a proceeding before the Tribunal, the appellant has the burden of proving where an appeal relates to an assessment, that the assessment is excessive”.
Citing the High Court decision in Commissioner of Domestic Taxes v Block International Limited [2024] KEHC 8889 (KLR), the Tribunal reiterated that pursuant to Section 30 of the Tax Appeals Tribunal Act and Section 56(1) of the Tax Procedures Act, the taxpayer bears the burden of proving that a tax assessment and/or decision is incorrect. The Tribunal also cited Darwine Wholesalers Limited v Commissioner of Investigations and Enforcement [2023] KEHC 23537 (KLR) for the proposition that the balance of proof lies with the party with the knowledge of facts.
The Tribunal observed that the KRA identified specific discrepancies, requested reconciliations and supporting records, and acted upon the information available after Intercounty failed to explain the variances adequately. The documents availed by Intercounty—bank statements, payroll records, sales ledgers, rent receipts, and loan statements—were not sufficiently directed to the discrepancies identified by the KRA.
The Tribunal applied the principle from Commissioner of Domestic Taxes v Jakoline Enterprises Limited (Income Tax Appeal E016 of 2024) [2026] KEHC 11141 (KLR), where the High Court held that “the law does not require the commissioner to play the role of a forensic accountant. When a taxpayer is asked to explain why its own declarations do not add up, it must provide a clear, specific, and indexed reconciliation. flooding the revenue authority with unindexed, chronologically mismatched files is not an act of compliance; it is an evasion of a taxpayer’s evidential duty”.
The Tribunal further noted that Section 13(2)(d) of the Tax Appeals Tribunal Act mandates the taxpayer to adduce documents to enable the Tribunal to make an informed decision. The Tribunal found that Intercounty failed to file documents and reconciliations to demonstrate that the KRA erred in confirming the assessment.
The Tribunal’s Decision
The Tribunal concluded that Intercounty failed to discharge its burden of proving the assessment was incorrect or excessive. The general assertions and unstructured documents supplied were insufficient to displace the KRA’s assessment. Consequently, the Tribunal found that Intercounty had not demonstrated that the KRA erred in confirming the taxes assessed.
The Tribunal issued the following Orders:
- The Appeal be and is hereby dismissed;
- The Objection Decision dated 4th September 2025 be and is hereby upheld;
- Each party to bear its own costs.
The judgment was delivered on 28th August 2026, sealing Intercounty’s fate and leaving the company with a massive tax bill of over Kshs. 24 million.
Key Takeaways for Taxpayers
1. General Assertions Are Not Evidence
A claim that you are “following up with customers” or that you “incurred operational costs” is not sufficient to discharge the burden of proof. Taxpayers must provide specific, indexed, and verifiable evidence. As the High Court held in Jakoline Enterprises, flooding KRA with unindexed, mismatched files is not compliance—it is an evasion of your evidential duty.
2. Understand the Burden of Proof in Tax Disputes
Under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, the burden of proof rests squarely on the taxpayer. It is not for KRA to prove that its assessment is correct; it is for the taxpayer to prove that the assessment is incorrect or excessive. This is a significant burden that requires thorough preparation and documentation.
3. Provide Reconciliations, Not Just Documents
When KRA requests reconciliations, providing bank statements, payrolls, and sales ledgers is not enough. Taxpayers must provide a clear, transaction-by-transaction reconciliation linking each withholding certificate to the relevant invoice, customer, ledger entry, VAT return, and income tax return. A proper reconciliation should identify any duplicate, erroneous, or reversed certificates, supported by correspondence, credit notes, or confirmations from customers.
4. The Principle Against Implication in Taxing Statutes Works Both Ways
Taxing statutes must be construed strictly. If Parliament intended a particular transaction to be taxable, it will say so expressly. The Tribunal cannot supply by implication what the statute does not impose. However, this principle also means that taxpayers cannot rely on implications to avoid tax liabilities that are clearly established by the law.
5. Document Every Transaction Meticulously
The recitals in contracts, invoices, and correspondence can prove decisive in tax disputes. In this case, Intercounty’s failure to document the reversal of withholding certificates or to provide evidence of erroneous certificates proved fatal to its case. Proper documentation can be the difference between winning and losing a tax appeal.
6. Raise All Issues at the Objection Stage
The Tribunal’s mandate is limited to analysing evidence and material produced before the Commissioner. Issues not raised at the objection stage cannot be introduced for the first time on appeal. Taxpayers should ensure all relevant arguments and documentation are presented during the objection process.
