Treasury targets special courts for tax disputes with KRA


Treasury targets special courts for tax disputes with KRA

The National Treasury Building in Nairobi on Sunday May 24, 2020. PHOTO | DENNIS ONSONGO | NMG

The Treasury is calling for the establishment of a Revenue Tribunal within the Judiciary to expedite the resolution of disputes between taxpayers and the Kenya Revenue Authority (KRA).

He wants to follow the US model where tax courts settle more than 90% of cases where the Internal Revenue Service (IRS) has issued a deficiency notice – in which the government says individuals or businesses owe money. in taxes.

The Tax Court will be akin to industrial and land courts, which deal with employment and land ownership disputes respectively.

This has been revealed in a draft National Tax Policy which proposes a series of changes including a new tax for farmers, setting the minimum Value Added Tax (VAT) at 12% and revising tax laws every five years.

The Revenue Court will have its judges who will travel to courts outside Nairobi to settle cases where the KRA has sued individuals or companies or where the Revenue is facing legal action.

ALSO READ: JSC Picks First Tax Court Team After Treasury Warrant Expires

Currently, the bulk of tax disputes in Kenya are channeled through the Revenue Tribunal before being taken to the High Court when a complainant is unhappy with a decision.

This has led to lengthy and costly litigation as the tax authorities race to collect more than 300 billion shillings in unpaid tax debt.

“I think it’s an attempt to build better case law (rules) for tax cases and follow appeal hearings in one court.

It will also help the KRA expedite business and recover taxes,” said John Ohaga, managing partner at TripleOKLaw Advocates – a leading commercial law firm.

“Tax issues take up a lot of time. I participated in one that lasted 10 years. He holds income for KRA for a long time, and the taxpayer must also build up reserves that affect the business.

Kenya will follow in the footsteps of countries like South Africa in establishing a Tax Court, which the United States established in 1924 and which makes decisions that shape tax laws and guide American businesses.

The Tax Court in the United States operates under a different section of the Constitution than most courts. It has its own distinct rules, including no juries, rules of evidence are less stringent, and its judges travel to dozens of cities to hear cases.

In Kenya, an aggressive KRA has seen tax issues brought to the strategy table and the board.

The aggression is well illustrated by the KRA’s recent closure of the Keroche breweries due to crippling tax bills.

The push for a tax tribunal comes amid legal changes to the tax tribunal aimed at delinking it from the Treasury and the KRA as well as speeding up the resolution of disputes.

Legal changes

The Judicial Service Commission (JSC) last month selected a 10-member team for the Tax Appeals Tribunal, two months after the Cabinet Secretary to the Treasury lost the mandate to make appointments.

ALSO READ: Appointment of tax court staff to be staggered

The JSC was given the power to appoint tribunal members following the amendment to the Tax Appeals Tribunal Act, which came into force in March 2022.

Parliament had rejected a Treasury offer to hire Tax Appeals Tribunal staff and set their salaries, calling it a threat to the independence of the adjudicator from the executive.

The legal changes also allow the court to sit full-time, which marks a change from the past when it held part-time hearings, which led to the backlog of unresolved cases which, in turn, delayed collection of taxes by the KRA.

“Provide for the autonomy of the out-of-court or out-of-court dispute resolution process from the Tax Appeals Tribunal by de-linking the process from the KRA and establishing a specialized tax tribunal,” the policy states.

Wealthy Kenyans and businesses have denied the KRA more than 200 billion shillings after challenging tax payment claims through the appeal tribunal.

The KRA says the authority has witnessed an increase in the number of taxpayers challenging unpaid duty notices in the Tax Appeal Tribunal.

This blocked enforcement actions such as freezing assets, disabling personal identification numbers, travel bans and lawsuits that ultimately led to the payment of unpaid taxes.

In recent months, the authority has engaged in an aggressive crackdown on wealthy individuals and corporations in the race to raise tax revenue, rooting out thousands of tax evaders and evaders.

The attack on tax evaders has coincided with an increase in cases filed in court.

ALSO READ: Taxpayers must deposit 50% of disputed tax to CBK before suing KRA

While in court, the tax authorities cannot apply the strict measures contained in the Tax Procedures Act 2015, which allows the tax authorities to issue travel bans to suspected tax evaders, collect duties directly from defaulters’ suppliers and bankers and pursuing arrears.

The KRA encourages businesses and wealthy individuals to turn to alternative dispute resolution (ADR) or out-of-court dispute resolution.

Through the ADR, where disputes are settled within the KRA, the Inland Revenue hopes to quickly resolve disputes and enable the collection of agreed taxes.

The KRA has stepped up its fight against tax evasion and has sought additional intelligence and enforcement officers to bolster investigations of wealthy individuals and businesses.

President Uhuru Kenyatta has ordered the revenue agency to hunt down wealthy individuals and businesses that have for years evaded taxes and denied the country money to fund development projects.

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