Kenya Tax Law- Why High court prohibit KRA from introducing new issues from objection decision

Introduction

In a recent landmark case in Kenyan tax law, the issue of introducing a new matter in an objection decision has emerged as a groundbreaking breakthrough. The case involved Bank of Africa and the KRA, with the Tax Appeals Tribunal (TAT) playing a pivotal role in determining whether the introduction of a new issue in the objection decision was permissible. This article aims to delve into the significance of this decision, its implications for tax disputes in Kenya, including the specific new issue introduced, and the subsequent review by the High Court of Kenya.

The case revolved around an objection decision made by the KRA, which the Bank of Africa contested. Initially, the KRA’s assessment had focused on the tax liability arising from the interchange fee, a fee charged by Bank of Africa for facilitating financial transactions. However, in the objection decision, KRA introduced a new issue by imposing a 20% tax shortfall penalty on Bank of Africa, alleging a false or misleading statement had been made by the bank.

The Prohibition on Introducing New Issues

Bank of Africa argued that the KRA’s introduction of the tax shortfall penalty in the objection decision violated Section 51 of the Tax Procedures Act. According to this provision, objection decisions should solely address the matters raised by the taxpayer during the objection process, and introducing new issues beyond what the taxpayer raised would be contrary to the Act.

The Tax Appeals Tribunal (TAT) Decision and the High Court Review

The Tax Appeals Tribunal (TAT) thoroughly examined the case and ruled in favor of Bank of Africa, concluding that KRA had introduced a new issue in the objection decision by imposing the 20% tax shortfall penalty. This penalty was not part of the initial assessment and thus fell outside the scope of the matters raised by Bank of Africa during the objection process.

Subsequently, KRA chose not to appeal the TAT’s decision regarding the introduction of the new issue. The case proceeded to the High Court of Kenya, where the TAT’s ruling was reviewed. After careful consideration, the High Court upheld the TAT’s decision, affirming that the introduction of a new issue in the objection decision was impermissible and violated the Tax Procedures Act.

Implications and Significance

The TAT’s and High Court’s findings regarding the KRA’s introduction of a new issue carry significant implications for tax disputes in Kenya. By upholding the prohibition on introducing new issues, the legal framework ensures fairness and procedural clarity for taxpayers. Bank of Africa was rightfully protected from an unexpected tax shortfall penalty that had not been part of the initial assessment and therefore had not been adequately addressed during the objection process.

This prohibition on introducing new issues is of paramount importance as it preserves procedural fairness and safeguards taxpayers’ rights. By adhering to the principle of not introducing new issues, objection decisions remain focused solely on the matters raised by the taxpayer. This ensures that taxpayers have the opportunity to present their case and address concerns within a defined scope, promoting transparency, consistency, and the equitable resolution of tax disputes.

Conclusion

The recent case involving Bank of Africa and KRA, which underwent review by the High Court of Kenya, has highlighted the prohibition on introducing new issues in objection decisions within the context of Kenyan tax law. The TAT’s initial ruling, upheld by the High Court, reinforces the importance of adhering to this principle and upholding procedural fairness. The KRA’s introduction of the 20% tax shortfall penalty in the objection decision, which had not been part of the initial assessment, underscored the significance of this prohibition. By recognizing and implementing this principle, the Kenyan legal system takes a commendable step forward in promoting transparency, equity, and justice in tax matters.