The unintended cost of late tax objections and lack of proper business records

The unintended cost of late tax objections and lack of proper business records

Case Study: Mara Beef Limited VS KRA

KRA issued MBL with additional tax assessments dated 2nd October 2018 for the years 2016 and 2017 based on Corporation tax declarations. The turnover for 2016 was estimated at Kshs. 124,430,940.00, whereas for the year 2017, it was Kshs. 136,874,034.00. No expenses were allowed. A demand was also issued on 2nd October, 2018.

MBL did not object to the additional tax assessment , nor did it honour the demand despite several reminders being issued, culminating in KRA issuing an agency notice.

MBL objected to the additional assessments on 27th March, 2020 on the /Tax platform stating other reasonable cause for objecting late as; “The primary email attached to iTax was long deactivated and was discovered very recently when the agency notice came into place. ” The objection letter further cited the following grounds:-

I. The additional assessments were estimated and

II. The loss brought forward was omitted.

MBL vide a separate letter dated 27th March, 2020 requested KRA to lift the agency notice on the ground that MBL had paid the amount attributable to PAYE Kshs. 475,286.00 and VAT Kshs. 592,907.00 and did an official objection on the amount attributable to income tax and had given the reasons for the objection.

KRA requested MBL to provide records in support of the objection namely:-

l. Bank statements.

II. Audited accounts.

Ill. Sales and purchases schedules and source documents.

IV. Expenses schedules and source documents

MBL did not avail of the records as requested. KRA subsequently rejected the objection on 28th May 2020 and confirmed the additional assessments.

MBL appealed to the TAT

MBL submitted that it is only on the 62nd day that KRA proceeded to issue an objection decision stating that they needed supporting documents yet KRA did not state which specific documents it ought to have been provided with to amend the assessment.(the law provides for 60 days)

MBL argued that KRA’s income tax additional assessment for the period 2015 to 2017 issued on 2nd October, 2018 was not a proper assessment under the law because it had no reasons for the assessment neither did it state the documents relied upon, nor did KRA in its Statement of Facts, attach any evidence to show that the assessment was accompanied by a statement of reasons.

With regard to objecting out of time, MBL was of the view that a deactivated email that was attached to its iTax profile unknowingly ; was a reasonable cause for it not to receive the additional assessment. In the era of technology including /Tax, it is normal for an email to be deactivated or to even lock itself so as to become inaccessible.

MBL argued KRA ‘s objection decision was not proper for failure to consider the documents in MBL’s objection decision and for failure to comply with Section 51 (4) of the Tax Procedures Act, by calling for any additional documents

KRA responded that the objection decision stated the reasons for confirming the assessment as follows:

  • MBL failed to provide relevant documents or evidence as required under section 51(3) (c) of the Tax Procedures Act
  • MBL did not give a valid reason for objecting out of time as required under section 51 (2) of the Tax Procedures Act.

In its ruling on 08/04/2022,the TAT observed that:

  • MBL was given 30 days to raise an objection, which translates to an opportunity to be heard.
  • MBL had over one year within which it could have logged into its ltax platform and noticed that there were additional assessments issued by KRA, the current state of things implies that MBL did not keep tabs of its tax records and/or even after the additional assessments, did not file any tax returns as they would have realized that the additional assessments had been issued.
  • MBL did not request to file a late objection prior to serving KRA with the same and save for the reason on the ltax portal, no such reason is imputed in the letters dated 27th March 2020.
  • One of the main contention of MBL was that the objection decision was done out of time. However, having determined that the objection was not valid, the Tribunal was of the view that the decision by MBL to communicate to KRA in regard to the objection was but a courtesy.
  • KRA was at liberty to make assessments based on available information and best judgment in scenarios where there is no information to refer to.

As such, MBL Lost

The unintended cost of late tax objections and lack of proper business records

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