- April 23, 2024
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Case Study: Mukasi Builders Limited vs. KRA
KRA conducted a compliance assessment on MBL’s VAT returns and annual income tax. The affected months on VAT returns were December 2015. December 2016. December 2018, December 2019, and June 2020. For the annual income tax returns, the periods affected were in 2015. 2016, 2017 and 2018
On 13th October 2020, KRA communicated its findings to MBL indicating that taxable income as per payment from Embu County in June 2020 was not declared, IT2C vs VAT declaration variances were observed and that MBL had been claiming capital allowances.
KRA asked MBL to review the returns & submit supporting documents. MBL was also advised to amend the returns, make the necessary payments and provide supporting documents within 14 days.
On 2nd December 2020, KRA issued a notice of assessment and demand for tax of Kshs. 6.4m for VAT and Kshs. 23.6mfor income tax, on grounds that MBL “failed to respond to the issues raised by either providing the requested documents or amending the affected returns.” The letter also advised MBL that in case it disputed the assessment, it had a right to object for the assessment in accordance with Section 51 of the Tax Procedures Act, 2015.
On 20th January 2021, KRA sent a notice for demand of tax in arrears of Kshs. 55.9m, for the period December 2015 to October 2020. MBL was given seven days within which to pay.
MBL objected to the assessment through a letter received by the Respondent on 29th January 2021.
The notice of objection was rejected on the grounds that it was not validly lodged. The rejection of the notice of objection was the genesis of this appeal
MBL appealed to the TAT.
The appeal was premised on the following grounds as stated in the Memorandum of Appeal filed with the Tribunal on 11th June 2021;-
- The dispute to be adequately addressed through an alternative dispute resolution (ADR).
- KRA to review their additional assessments or start a new assessment.
- MBL as taxpayer be given fair tax administration and tax (if any), resulting from this case.
- KRA to lift the bank restrictions to allow MBL to resume business as the case is being solved.
KRA responded that:
- MBL lodged an invalid objection notice that did not meet the threshold specified under Section 51(3) of the Tax Procedures Act.
- MBL failed to precisely state the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments contrary to Section51 (3) (a) of the TPA, 2015.
- MBL failed to discharge his evidential burden of proof under Section 107 (1) of the Evidence Act in demonstrating that the assessment by the Respondent was in any reasonable manner, incorrect or excessive.
In its ruling on 09/09/2022, the Tax Appeal Tribunal observed that:
- The failure to submit documents is in contravention to Section 51 (3) of the Tax Procedures
A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if
(a) the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, end the reasons for the amendments;
(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the ‘assessment that is not in dispute or has applied for an extension of time to pay for the tax not in dispute under section 33(1); and…..
- KRA has statutory powers to request documents and information from a taxpayer for purposes of determining the taxpayer’s tax liability. This is provided under Section 59 (1) (a) of the Tax Procedures Act, which stipulates that:-
“For purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to the tax law, the Commissioner or an authorized officer may require any person, by notice in writing, to -(a)produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person’s custody or. under the person’s control relating to the tax liability of any person;”
- MBL did not pay the tax in dispute before submitting the objection as required by the law.
Section 51(3) (b) of the Tax Procedures Act clearly states that a notice of objection shall be treated as validly lodged by a taxpayer under subsection
(2) if- “In relation to an objection assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1);.”
Having found that the objection was not validly lodged, the Tribunal did not delve into the other issue that fell for its determination as it was rendered moot
