What does a valid default/additional tax assessment by the taxman constitute?

What does a valid default/additional tax assessment by the taxman constitute?

Case Study: Sukari Investment Limited VS KRA

KRA conducted investigations on SIL’s business operations.

On 17th April 2018, KRA issued a demand letter for Kshs 57m which action prompted SIL to file amended income tax returns for the years 2013-2017. KRA, after reviewing the Appellant’s returns, bank statements and other documents issued a revised additional assessment amounting to Kshs 757m .

In the aforesaid demand notice dated .23rd November 2018, KRA demanded immediate payment of the assessed taxes, and at the same time advised SIL of its right to object to the decision within 30 days pursuant to Section 51 of the Tax Procedures Act (“TPA”).

SIL appealed to the TAT

SIL submitted that:

  • SIL submitted that KRA indicated on the last page of the demand notice, “The above taxes are hereby assessed and by this letter demanded” SIL submitted that Section 29(2) of the TPA on “Default Assessments” sets out the mandatory requirements of an assessment and provides that:

“The Commissioner SHALL notify in writing a taxpayer assessed under subsection (i) of the assessment and the Commissioner shall specify-

(a) the amount assessed as tax or the amount of a deficit or excess of input tax carried forward, as the case may be;

(b) the amount assessed as late submission penalty and any late payment penalty payable in respect of the tax, deficit, or excess input tax assessed:

(c) the amount of any late payment interest payable in respect of the tax assessed;

(d) the reporting period to which the assessment relates;

(e) the due date for payment of the tax, penalty, and interest being a date that is not less than 30 days from the date of service of the notice; and

(f) the manner of objecting to the assessment.”

  • SIL submitted that the demand notice did not specify late payment penalty and stipulated immediate payment of the taxes deemed due which is contrary to the provisions of Sections 29(2) and 31(8) of the Tax Procedures Act. Both sections provide that the due date for payment of any tax, penalty and interest should not be less than 30 days from the date the taxpayer receives the notice
  • SIL submitted that the best practice requires that an assessment be made on KRA’s i-Tax portal, and that was not done. Best practice also requires that tax assessments and tax demands, being distinct, are done separately and that assessment precedes the demand.
    SIL submitted that the demand notice failed to meet the minimum threshold to be regarded as a tax decision or assessment under Sections 29(2) and 31 (8) of the TPA. As such, the requirements of Section 51 of the TPA Act on objecting to tax decisions therefore ought not arise
  • SIL submitted that all the information pertaining to input taxes and all the deductible expenses were within the purview of KRA,but it chose to ignore expenses incurred to generate the business income in its computation contrary to Section 15(1) of the Income Tax Act (“ITA”). As such, KRA’s computation was fatally defective and materially misstated.

KRA responded that:

  • KRA submitted that the demand issued was also treated as an assessment pursuant to Section 29 of the TPA. That KRA had, in its letter dated 17th April 2018, sought additional documents and upon further investigations and discovery of new evidence, a formal demand and assessment was issued on 19th November 2018 and which SIL did not object to.
  • KRA averred that the onus is upon SIL to show that the assessment made on the company is excessive and incorrect pursuant to Section 56 of the TPA, which burden SIL had failed to discharge Section 56 provides that:

“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

In its ruling on 14/04/2022, the tribunal observed that:

  • Sections 29(2) and 31(8) of TPA require KRA to observe several requirements when communicating assessments raised under the Sections 29 and 31 of the TPA to the taxpayer. These include specifying the late payment penalty due on the assessment, that the payment for the assessment should not be less than 30 days from the date of service to the taxpayer and specifying the manner of objecting the assessment

“Section 29(2) – The Com missioner SHALL notify in writing a taxpayer assessed under subsection (!) of the assessment, and the Com missioner shall specify

(a) the amount assessed as tax or the amount of a deficit or excess of input tax carried forward, as the case may be;

(b) the amount assessed as late submission penalty and any late payment penalty payable in respect of the tax, deficit, or excess input tax assessed;

(c) the amount of any late payment interest payable in respect of the tax assessed;

(d) the reporting period to which the assessment relates;

(e) the due date for payment of the tax, penalty, and interest being a date that is not less than 30 days from the date of service of the notice; and

(f)the manner of objecting to the assessment ”

After carefully considering the aforesaid provisions, the Tribunal was of the view that KRA’s demand notice did not fully comply with the above requirements and fails several of the crucial tests, namely:

a) No late payment penalty was assessed and communicated to the taxpayer,

b) KRA demanded immediate payment of the taxes notified and,

c) Where KRA notified SIL of its rights to object to the assessment, the manner of submitting the objection was not specified.

It would therefore follow that KRA’s demand notice did not constitute an assessment

TAT final orders were:

· KRA’s assessment/demand notice was set aside;

· KRA’s agency notices were lifted unconditionally;

· KRA is at liberty to reissue fresh assessments;

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What does a valid default/additional tax assessment by the taxman constitute?



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