Tribunal upholds KRA's position in Sh1.2bn case

Says notice of tax investigations not appealable decision

In Summary

•The ruling is a big win for KRA and will boost efforts to curb tax evasion and enhance tax compliance.

•The taxman recently warned evaders saying it will not allow any revenues to be lost.

The KRA headquarters at the Times Tower/
The KRA headquarters at the Times Tower/
Image: FILE

The Tax Appeals Tribunal has upheld Kenya Revenue Authority’s position in a case filed by three taxpayers over a Sh1.2 billion dispute.

The three companies had challenged a move by KRA’s Commissioner for Investigations and Enforcement to issue them with Notices of Tax Investigations.

In their appeal to the Tribunal, Mobile Galary Limited, Anand Kenya  Trading Limited, and Smart Phone Stores Limited  had argued that Commissioner for Investigations and Enforcement’s Notices of Tax Investigations  issued upon them were unconstitutional and unlawful.

The Commissioner had conducted investigations into the tax affairs of the three firms and preliminary findings indicated that Mobile Galary Limited owed  taxes of up to Sh781,573,257, Anand Trading Kenya Limited owed KRA Sh109, 686, 655, while Smart Phone Stores Limited owed Sh273,338,150.

This totals to about Sh1.2 billion.

In the notices, the Commissioner had invited the three companies to resolve  the  issue within 14 days or risk  prosecution for tax evasion.

The three companies argued that the notices amounted to a final decision owing  to the looming criminal prosecution, and that the demand for payment without an assessment being issued first was not only unreasonable but also unlawful.

The KRAs position was that the notices were meant to inform the taxpayers of the investigations. 

The preliminary findings had indicated that there was undeclared income which was an indication of the tax offences committed by the taxpayers. 

The Commissioner further contended that the notices were meant to give the  taxpayers an opportunity to explain the deposits in their bank accounts.

The Tax Appeals Tribunal agreed  with the Commissioner’s preliminary objection  that a Notice of Tax Investigation is not an appealable decision as contemplated by the Tax Procedures Act.

It is premature for the appellant to file an appeal to the Tribunal on the basis of an initial notice of investigation issued by the respondent, it said.

"If the Tribunal was to stop investigations at such an early stage, on the grounds relied upon by the Appellant, such an order will undoubtedly hinder the respondent in carrying out its statutory mandate," the Tribunal ruled.

The ruling is a big win for KRA and will boost efforts to curb tax evasion and enhance tax compliance.