Tax not in dispute should be paid before an appeal to the Tax Appeal Tribunal

Tax not in dispute should be paid before an appeal to the Tax Appeal Tribunal

Case Study; Dankey Press Limited VS KRA

The matter was initiated by KRA upon investigations into the tax affairs of DPL on 7th November 2019. The investigations revealed that DPL had been paid a sum of Kshs 129,313,302.00 by Migori County between the years 2013 and 2017 and had paid no taxes on the same.

KRA issued DPL with a tax demand for unpaid VAT of Kshs 17,836,317.00 and also issued a notice to appear through the letter dated 07/11/2018. KRA consequently made further requests for further information and documentation from DPL. DPL objected to the tax assessment on 10th December 2019 and requested for time to pay the undisputed amount.

KRA issued its Objection Decision vide a letter dated 16th February 2021, demanding total tax of Kshs 25,811,903 .00 (VAT-17.8M,Income Tax-7.0M)

DPL appealed to the TAT on the following grounds:

· That KRA confirmed the notice of assessment without due regard to all records, explanations, information, withholding taxes, and payments provided by DPL, thereby failing to appreciate all issues presented by DPL before confirming the assessment.

·That Section 51 (3) of the TPA, provides for the conditions that need to be fulfilled for a notice of objection to be treated as validly lodged by a taxpayer

· KRA’s decision is in response to the objection filed by DPL on 10th December 2019. However, additional assessment was introduced on initial assessment as included in the final decision.

· That the income tax assessment is based on the Profit Margin ratio of 20% with an assumption that the taxpayer made a profit. KRA approximated profit margin is not based on law. No provision has been made in the TPA Act.

·That the amounts confirmed by KRA of Kshs 25,811,903.00 in respect to Income Tax & VAT for the period 2013,2014, 2015, 2016, & 2017 is therefore wrong in law, fact, and should be annulled.

KRA responded that:

· Preliminary investigations on the company revealed that the Migori County Government paid the company between the periods 2014 and 2017 a sum of Kshs 136,099,12 7 .00 However, it was revealed that DPL company failed to make any tax declarations

· DPL filed its objection to the demand on 10th December 2019 with a subsequent request for an extension of time to pay the tax not in dispute.

· DPL, requested an opportunity to provide more documents for review and audit by the Respondent. The same was granted vide the letter of 5th February 2020 and DPL was also informed that an Objection Decision would be issued upon review of all the documents that would be provided by DPL

In its ruling on 05/08/2022, the tax appeal tribunal observed that:

· Section 52(2) of the TPA provides as follows in regard to appeals to the Tribunal

“A notice of appeal to the tribunal relating to an assessment shall be valid if the taxpayer has paid the amount not in dispute or entered into an arrangement with the commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.”

This section had been violated by DPL.

· In the circumstances, the Tribunal found that DPL’s appeal was invalid. The Tribunal did not accordingly delve into the other issue for determination as the same had been rendered moot.

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