How to Challenge Penalties Related To KRA iTax Failure

ABWL was required by law to file its VAT return for October 2023 by 20th November 2023.
On the afternoon of 20th November 2023, ABWL attempted to file its return but was unable to due to KRA iTax failure and system malfunction.
The system issue was resolved by the next day, 21st November 2023. ABWL filed its return immediately, but the iTax system automatically imposed a late filing penalty of KES 28,239.
ABWL objected to the penalty, arguing the delay was the KRA’s fault. The KRA rejected the objection, leading to this appeal.

KRA’s system failure amounted to a “dereliction of duty” under the Tax Procedures Act (TPA).
It was unfair and a violation of the right to fair administrative action (Article 47 of the Constitution) to penalize ABWL for KRA’s own failure.
ABWL provided evidence of the system error and public complaints from other taxpayers on KRA’s social media (“KRA Care”), proving the malfunction was widespread and known to the KRA.
ABWL had a legitimate expectation that the filing platform would be functional.

The return was filed late, and the law (Sections 83(1) and 94 of the TPA) mandates a penalty for late submission.
The KRA denied knowledge of any system malfunction on that specific day.
ABWL had the entire period from the 1st to the 20th to file and chose to wait until the last day.
ABWL failed to prove it contacted the KRA’s call centre to report the issue, as instructed on its website. The problem could have been due to ABWL’s poor internet connection.

The Tribunal ruled in favor of ABWL based on the following key findings:

The “Reasonable Cause” Defense: The Tribunal focused on the wording of Section 94(1) of the TPA, which states that a person commits an offence if they fail to file “without reasonable cause.” The Tribunal interpreted this to mean that a penalty is only applicable if no reasonable explanation for the delay exists.
ABWL Acted Diligently: The Tribunal found that ABWL had demonstrated a “reasonable cause” for the delay. The evidence (screenshots of the error and attempts to contact support) showed ABWL exercised “ordinary business care and prudence” but was prevented from filing by factors beyond its control.
KRA’s System Failure was the Cause: The Tribunal accepted ABWL’s evidence that the KRA iTax failure caused the delay. The KRA’s denial was unconvincing in light of the public evidence from its own social media channel.
Precedent: The Tribunal relied on its own previous ruling in Kenafric Industries Limited v. Commissioner of Domestic Taxes, where it was held that hitches in the iTax system constitute a reasonable cause for late filing, especially when the taxpayer informs the KRA.
Burden of Proof Met: The Tribunal held that ABWL had successfully discharged its burden of proof by providing credible evidence of the system failure and its own attempts to comply.

The Tribunal issued the following orders:

a. The Appeal was allowed.

b. The KRA’s objection decision upholding the penalty was set aside.