Tax Refund Decision must be issued within 90 days; tax objection decision must be issued within 60 days

The dispute in this Appeal arose when LTKL made applications for refund for the year of income 2015, 2016, 2017 and 2018. KRA reviewed the claim after which it noted that some of the claims by LTKL related to credits under Section 42 of the Income Tax Act Cap 470 that relates to credits under special arrangements while the credit claimed by LTKL had no relation to said section of the law.

Consequently, KRA raised additional assessment vide a letter dated 29th January 2021. LTKL objected to the assessment on 25th February 2021. Thereafter, KRA issued its Objection Decision dated 1st August 2023, rejecting the refund claim

Consequently, KRA raised additional assessment vide a letter dated 29th January 2021. LTKL objected to the assessment on 25th February 2021. Thereafter, KRA issued its Objection Decision dated 1st August 2023, rejecting the refund claim.

LTKL, being dissatisfied with KRA’s decision, appealed to the TAT under the following grounds:

• For the period 2016 to 2018, KRA erred in law and fact by disallowing refund claims that had already been allowed by operation of the law.
• For the period 2019, KRA erred in law and fact in issuing its refund decision out of time contrary to the provisions of Section 47 (3) of the Tax Procedures Act (Tax Procedures Act).
• KRA’s decision amounts to a violation of LTKL’s legitimate expectation.
• KRA has erred in law and fact by misapplying itself in its findings and attempting to enforce a tax decision which lacks a legal and factual basis.
• KRA erred in law and fact by ignoring the findings of its audit which among other things confirmed that LTKL was in a tax loss position during the period under review and therefore the tax refunds claimed were valid.

LTKL argued that:

• On various dates between August 2016 to August 2019, LTKL through iTax requested, pursuant to Section 47 (1) of the Tax Procedures Act 2015, for refund of income tax overpayments for the period 2015 to 2019.
• That KRA did not request for information in relation to LTKL’s refund claims until 6th September 2022, when KRA issued a Notice of Intention to Audit letter to LTKL. According to LTKL, its objection of 25th February 2021 had been allowed by operation of Section 51 (11) of the Tax Procedures Act.
• As for the refunds due, LTKL stated that it had also marked the applications for refund as allowed in accordance with Section 47 (3) of the Tax Procedures Act so the expectation was that KRA would proceed to effect the refunds in line with Section 47 (2) of the Tax Procedures Act. However, to LTKL’s surprise, more than 3 years later, KRA through a letter dated 1st August 2023 purported to reject LTKL’s tax refund claims fully.
• for the period 2016 to 2018, KRA erred in law and fact by disallowing refund claims that had already been allowed by operation of the law. LTKL stated that through iTax assessments issued on 29th January 2021, KRA adjusted LTKL’s tax credits claimed under Section 42 of the TPA, of the return and alleged that the resultant assessment had been offset against refund amounts applied for by LTKL on iTax.
• LTKL partially objected to the assessments on 25th February 2021 where it contested KRA’s assessment on grounds that the disallowed amounts had included tax credits of Kshs. 8,087,467.00 brought forward from the legacy returns for the financial year 2015; and that the disallowed amounts included Withholding Tax (WHT) credits of Kshs. 4,561,360.00 and Kshs. 1,719,071.65 for FY 2016 and FY 2017 respectively.
• According to LTKL, KRA was required to respond to LTKL’s objection within 60 days that is on or before 27th April 2021 but it failed to do so.
• LTKL asserted that the only exception to the 60-day time limit under Section 51 was where KRA had requested for additional information in order to assess the objection filed.
• With regards to second ground of appeal, LTKL stated KRA erred in law and fact in issuing its refund decision out of time contrary to the provisions of Section 47 (3) of the Tax Procedures Act. It relied upon Section 47 (1) (b) of the Tax Procedures Act which provides that a taxpayer may apply to KRA in a prescribed form for a refund tax within five years after the date on which the tax was overpaid. LTKL averred that its applications for refund were all within the prescribed five years under the law.
• LTKL also cited the provisions of Section 47 (2) of the Tax Procedures Act which provides that KRA shall ascertain the application for refund within 90 days and in the case of a refund under Section 41 (1) (b) of the TPA, refund the overpaid tax within a period of six months from the date of ascertainment. LTKL argued that Section 41 (3) of the Tax Procedures Act provides that where KRA fails to ascertain and determine a refund application within ninety days, the same shall be deemed ascertained and approved.
• With regards to third ground of appeal, LTKL stated that a legitimate expectation was created when KRA failed to issue its decision within the timelines prescribed by Sections 47 and 51 of the Tax Procedures Act. It added that KRA’s attempt to reject the refund claim more than two years after the due date is therefore an outright violation of this legitimate expectation and the procedures laid out under the Tax Procedures Act

KRA responded that:

• KRA averred that LTKL was required to adduce documents to ascertain whether the refunds were duly payable but LTKL failed and/or neglected to furnish KRA with said documents. KRA stated that Section 59 of the Tax Procedures Act 2015 requires LTKL to provide records to enable it to determine its tax liability. It maintained that LTKL failed to provide sufficient supporting documents demonstrating that the underlying transaction indeed took place.
• for the rejection of LTKL’s VAT refund is that LTKL failed and/or neglected to submit requisite documents to verify the refund claim.

 In it ruling on 01/08/2024, the TAT observed that:

• Under Section 51 (11) (a) of the TPA, KRA was obligated in law to issue the Objection Decision within 60 days from the date of receipt of the Notice of Objection failure to which the objection shall be deemed to be allowed. That LTKL argued that KRA did not make any request for information in relation to LTKL’s refund claims until 6th September 2022, when KRA purported to issue a Notice of Intention to Audit LTKL’s business.
• KRA having failed to issue Objection Decision or request for the documentation from LTKL within 60 days as provided for under Section 51 (11) (a) and (b) of the Tax Procedures Act respectively, LTKL’s Notice of Objection dated 25th February 2021 stood allowed by operation of law.
• There is no evidence that was submitted that since lodging of the various application spanning from 2015 to 2019 that KRA notified LTKL of its decision to the refund applications on a date earlier than 1st August 2023, which was beyond the period of 90 days provided therein.

As such KRA Lost

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