Following a tax audit, the Kenya Revenue Authority usually provides the taxpayer with an initial audit report. This report outlines the audit’s findings and the anticipated tax liability. The taxpayer may be requested to submit further information or documents to address any issues identified during the audit.
At this stage, a taxpayer may be able to settle straightforward matters. However, where certain issues remain unresolved, a notice of assessment may be issued by the KRA.
Therefore, this article seeks to explain what taxpayers may expect after a tax audit and looks into the next phases of the dispute resolution process, namely, assessments, objection letters and objection decisions.
The Notice of Assessment
After resolving non-contentious issues and finalizing the audit’s findings, the process moves to the Notice of Assessment phase. This notice from the KRA to the taxpayer, issued both electronically (via iTax) and in paper form, includes:
- The total tax due.
- Any penalties associated with the tax.
- Interest charges on the assessed tax.
- The specific reporting period of the assessment.
- The deadline for paying the tax, penalties, and interest.
- Instructions for contesting the assessment.
The Objection
The issuance of the Notice of Assessment concludes the audit and initiates the objection phase. This stage is regulated by Section 229 of the East African Community Customs Management Act (EACCMA) for customs taxes and Section 51 of the Tax Procedures Act (TPA) for domestic taxes, outlining the formal process for disputing the assessment findings.
The stage of objection serves as a second chance for resolving disputes. When a taxpayer receives a Notice of Assessment with which they disagree, they are entitled to file a written objection within thirty (30) days of receiving the notice. An objection is considered valid if it:
- Clearly outlines the reasons for the objection.
- Specifies the necessary amendments to rectify the assessment, along with the justification for these changes.
- Confirms that the taxpayer has settled the portion of the tax assessment that is not being contested, or has formally requested more time to pay this undisputed tax amount.
- Includes all relevant documentation related to the objection.
Paying any undisputed tax amounts before filing an objection is crucial. If the taxpayer cannot pay the full amount at once, they may request, in writing, an extension from the KRA per Section 33 of the Tax Procedures Act (TPA). Upon such a request, the KRA may either grant an extension for the tax payment or allow the taxpayer to pay in installments, depending on the situation’s merits.
It’s important to note that any documents presented to the Tax Appeals Tribunal must have been previously submitted to the KRA during the objection stage. This requirement stems from a recent amendment to the Tax Appeals Tribunal Act.
If the KRA finds that an objection hasn’t been properly filed, they will inform the taxpayer immediately, requiring corrections. Should the taxpayer need more time beyond the initial thirty days to file their objection, they can request an extension in writing from the KRA. The KRA will consider such a request based on:
- The reasons preventing the timely filing of the objection, such as being outside Kenya, illness, or another valid reason, and
- The assurance that there was no unreasonable delay in filing the objection after these circumstances were resolved.
Determining what qualifies as a “reasonable cause” for delay is often subject to legal interpretation and varies on a case-by-case basis.
The Objection Decision
After a taxpayer files a valid objection, the KRA must carefully review it and deliver an objection decision within sixty (60) days from the objection’s submission. The KRA’s objection decision can:
- Fully or partially uphold the objection, or
- Reject it entirely.
The taxpayer will be informed of this decision through a written statement, which includes a detailed account of the factual findings and the rationale behind the decision. According to Section 51 (11) of the TPA, if the KRA fails to issue a decision within the specified sixty-day period, the objection is automatically considered as accepted.
In our next articles, we look at what happens after the objection decision and explore the next phases of the dispute resolution process including Appeals to the Tax Appeal Tribunal, Alternative Dispute Resolution Mechanisms and Appeals to the High Court and Court of Appeal. You can read more about these on the below links:
Tax Audits and Dispute Resolution – The Kenya Series 3: Appeals to the Tax Appeals Tribunal, Courts and ADR
You may also read:
What to do when you receive an Email or Notice From the Kenya Revenue Authority
Tax Audits and Dispute Resolution – The Kenya Series 1: Managing KRA tax audits
W&T Advocates LLP are here to assist
Our team at W&T Advocates LLP is experienced in all stages of the tax audit and dispute process. Our approach is designed to help people and organizations address tax audits and disputes through effective strategies for their mitigation, management and prompt resolution.
We can help you to implement consistent and defensible dispute resolution practices and policies as indicated below:
- Responding to letters and notices from the KRA including Requests for Information, Demand Letters and Assessments;
- Assisting in resolving any potential dispute during the audit phase;
- Drafting objection letters and applications for review to the KRA;
- Drafting appeals to the Tax Appeals Tribunal;
- Representation of the appeal at the Tax Appeals Tribunal, High Court and Courts of Appeal. This involves attending mentions and hearing at the Tribunal and Courts to ensure our client’s needs are adequately represented; and
- Engaging in alternative tax dispute resolution mechanisms where appropriate.
Editor’s note: Should you have any questions about this legal alert, please do not hesitate to contact:
Andrew Waithumbi Partner W&T Advocates LLP waithumbi@wtadvocates.com
Timothy Thambu Partner W&T Advocates LLP thambu@wtadvocates.com
