Kenya: KRA Time-Barred in Sh25 Million Tax Demand

27 September 2020

The Tax Appeals Tribunal has stopped the Kenya Revenue Authority (KRA) from demanding tax arrears of Sh25.6 million from an education investor that had partnered with Mount Kenya University (MKU) to establish the institution's Nakuru campus.

The Mohat Somane-chaired five-member tribunal found that decision by Commissioner of Domestic Taxes to demand arrears of Sh25,690,397 from Step up Holdings (K) Ltd was time-barred.

The investor filed the appeal after the commissioner demanded the arrears via a letter dated March 28, 2018.

In its ruling, the tribunal found that Section 51 (11) of the Tax Procedures Act 2015 mandates the commissioner to render an objection decision within 60 days from the date a taxpayer lodges an objection notice.

Step up Holdings had lodged its objection notice with the commissioner on September 4, 2012. The tribunal said for all intents and purposes, time started to run as of the date of filing the objection notice.

Domestic Taxes

"We find that the respondent (Commissioner of Domestic Taxes) simply sat on laurels until March 28, 2018, and the same in law has the implication that the appellant's objection is deemed allowed," ruled the tribunal.

It said the KRA as the key institution charged with the administration of all the tax laws in the country should have known of the statutory timelines if at all it seeks to enforce assessments.

"As such, it is our considered view that the appellant's objection is deemed as allowed by law hence making it moot for this tribunal to address any substantive tax disputes relating to the commissioner's assessment," said the tribunal. Other members of the tribunal were Patricia Magiri, Timothy Chesire and Wambui Namu.

The firm had through a memorandum of understanding dated September 1, 2008, partnered with (MKU) to collaborate in offering the institution's courses. Subsequently, the investor established the Nakuru campus.

The KRA on its side said its demand for the tax arrears was justified and was based on evidence. It alleged that there was tax due from the company the directors, for the purchase of cars, which were in the name of the Step up Holdings (K) Ltd. The directors did not purchase the cars in their personal capacity.

Further, it said, there was an issue of a provision for withholding tax without providing evidence or providing the source of this withholding tax transaction.

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