The Kenya Revenue Authority has recovered about Sh6.6 billion in taxation revenues from disputes resolved through the Alternative Dispute Resolution mechanism in less than two years.
More than Sh35 billion was locked in various tax disputes before the ADR framework was launched on June 17, 2015.
Commissioner for strategy, innovation and risk management Mohamed Omar said about 140 tax disputes, which had been pending before the Tax Tribunal, have been resolved through the ADR.
“There are also other tax disputes which have been resolved in favour of taxpayers without revenue yield when upon review the tax demands were found to have been wrongly issued,” Omar said in an email to the Star.
The disputes largely involved the corporates, he said, adding that the dominant small and medium-sized enterprises have been slow to adopt the new framework which ordinarily takes less time and resources compared to court processes.
The ADR process has also faced the challenge of “unrealistic” expectations, with some parties in the disputes asking for waiver on accumulated interest and penalties on the taxation due.
“Parties fail to understand that a process like waiver is handled by other departments, including the National Treasury, and not the [KRA] division steering the ADR process,” Omar said. “It bears mentioning that management of parties’ expectations greatly impacts on how much time it takes to resolve a tax dispute.”
The taxman plans to anchor the ADR framework in the Tax Procedure Act 2015 to widen its scope to other forms of disputes. This largely targets the international tax disputes where arbitration is mostly applied.
“Anchoring ADR in the Tax Procedure Act will provide for the development of subsidiary legislation in the form of binding rules and regulations,” Omar said. “What is undeniable is that the future resolution of tax disputes lies in a process that is alternative to the traditional adversarial judicial or quasi-judicial processes.”