The principle of equity in taxation, anchored in the Kenya Constitution 2010, underscores that every taxable citizen must pay taxes and that everyone must pay their fair share of the taxes.
Tax disputes may arise for various reasons, including issuance of additional assessments, an inclusion of any amount or the exclusion of any amount or any other decision by the Commissioner.
An interpretation of facts involved in any dispute, or the law applicable or both can also lead to a tax dispute.
Alternative Dispute Resolutions operates within the timelines provided in the revenue statutes for making a decision on the objection. They are Value Added Tax Act and East Africa Community Customs Management Act, the Tax Procedure Act and in the Income Tax Act. ADR is now recognised in the Kenyan legal framework.
KRA has recovered about Sh6.6 billion in taxation revenues from disputes resolved through the ADR 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.
About 140 tax disputes, which had been pending before the Tax Tribunal, have been resolved through the ADR.
The regulatory costs of doing business shows that taxes, in particular VAT, are perceived as the most problematic set of regulations. Above all it is the paperwork that has to be mastered to comply with tax legislation which is deterring firms from meeting their tax obligations appropriately. ADR aims to help to resolve disputes or get an agreement on which issues need to be taken for a legal ruling.
The availability of amicable resolutions leads to a reduction in cases brought before the courts This is meant to limit the Judiciary’s role to be that of the guardian of the agreements concluded by parties and a source of resolutions in matters in which agreement proves impossible to reach. Disagreements may arise due to discrepancies in the interpretation of regulations or due to the antagonistic attitude of the parties.
ADR can also lower service costs by shortening the duration of proceedings. Both for the taxpayer and the tax authority, reaching a resolution more promptly means less use of human resources and lower expenses related to bringing a case before the court.
The main element which speeds up the operation of ADR procedures is the elimination of time-consuming formal issues. This factor is particularly significant to taxpayers who, in order to complete dispute-related formalities, are often forced to use long-term professional support. This may generate considerable costs.
Omar is KRA's commissioner for strategy, Innovation and risk management