• The Court of Appeal agreed with KRA nearly 10 years later in February 2017 and asked KRA to make reasonable assessments.
• Interestingly, at about the same time, TAT was seized of three other appeals by Keroche relating to assessments for 2015 and 2017.
One of the most public tax disputes in Kenya has pitted Keroche Breweries Limited against the Kenya Revenue Authority over a tax dispute dating back to November 2006 when KRA issued Keroche with a tax liability assessment of over Sh1.1 billion.
Keroche moved to the High Court and filed for judicial review to quash the assessments.
In July 2007, the High Court ruled in favour of Keroche and quashed the assessments.
KRA then moved to the Court of Appeal on the basis that Keroche did not exhaust all the avenues of appeal available in law before moving to the High Court.
The Court of Appeal agreed with KRA nearly 10 years later in February 2017 and asked KRA to make reasonable assessments. Keroche promptly moved to the Tax Appeals Tribunal (TAT).
Interestingly, at about the same time, TAT was seized of three other appeals by Keroche relating to assessments for 2015 and 2017.
TAT combined the appeals and rendered judgement in favour of the taxman to a tune of Sh9,116,835,985.00 and the latter promptly moved to enforce the judgement.
As expected, Keroche moved to the High Court to quash the decision of TAT.
The matter is still pending in Court 14 years later and going by the amount of time the above-mentioned case took, there is a possibility that this case could take another decade to go through the appeals process.
If this were to happen, this case could easily take 25 years to settle!
No case demonstrates most the need for alternative tax disputes resolution mechanisms than this particular one. In a litigation process that takes over two decades, all the parties end up losing even on the basis of legal costs alone.
And this case is just the tip of the iceberg.
As of the date of writing this article, there are over 822 cases pending before the Tax Appeals Tribunal with a revenue implication of Sh171,068,561,504.92; and 858 cases pending before the High Court with a revenue implication of Sh129,739,281,402.21.
To put this in perspective, the amounts disputed are sufficient to fund the entire Judiciary optimally for the next 15 years and is only Sh16 billion shy of what we need to fund devolution for a whole year.
It is also enough to buy Covid vaccines for the entire East African Community.
It is important to note that the cases before both TAT and the High Court are subject to appeal and could very easily go to the highest court in the land with huge litigation costs to both parties given that several could take decades before final resolution – but more importantly to the provision of services to the taxpayers.
Faced with these long periods it takes to resolve tax disputes, KRA launched a framework on the Alternative Disputes Resolution (ADR) Framework in 2015 to among others provide a taxpayer focused approach to dispute resolution by giving the taxpayer an opportunity to seek an amicable resolution to their disputes alternative to litigation/appeal and to provide an additional approach for dispute resolution to complement the existing internal dispute resolution mechanisms provided in the Tax Procedures Act.
ADR is a voluntary, participatory and facilitated discussion over a tax dispute between a taxpayer and the Commissioner.
It is in the form of facilitated mediation and not arbitration as envisaged in the Arbitration Act, as the facilitator has no power to impose any decisions regarding the outcome of the tax dispute.
Instead, the parties are facilitated to find a solution to the dispute. Overall, ADR seeks to enrich the entire dispute resolution process by providing flexibility and timely/early dispute management without the limitations imposed by judicial and quasi-judicial processes as regards technical procedures, untimely decisions and the rising costs of litigation.
Today, ADR is widely favoured over litigation and applied in a number of Tax Revenue Administration globally with great success.
Some of the benefits of ADR in tax disputes include expedited resolution of tax disputes, decreased cos of tax dispute resolution associated with litigation, enhances and manages cordial relationships between KRA and the Taxpayer, improves service delivery to the Taxpayer (including tax consultants and legal advisors), addresses customer concerns and improves tax compliance and confidentiality.
The impact has been instantaneous.
The average number of days taken to resolve disputes in FY 2019/2020 for ADR cases was 69 days compared to Court cases which were 2.39 years and TAT cases which was 1.7 years.
Again Court and TAT cases are subject to Appeal further increasing the lifespan of the dispute. This shows that cases that go through ADR are resolved much faster than cases in Court or TAT.
In the Financial Year 2019/2020, KRA managed to resolve 284 cases through ADR thereby unlocking revenue of Sh9,561,124,607.
During the same period, the TAT concluded 140 cases releasing revenue of Sh5,136,165,409.35.
It is important to note that even where parties to a dispute are already before TAT or the courts, they can ask for an opportunity to enter into ADR pursuant to Article 159(2) of the Constitution.
In that case, such negotiations must be completed within 90 days upon which the parties shall report back to the Tribunal or Court what has been agreed, and in case of non-agreement, proceed with the case until it is determined.
It is clear that KRA’s Alternate Dispute Resolution mechanism, in addition to the well-established internal dispute resolution mechanisms, is poised to play an important role in resolving tax disputes in Kenya.
A tax dispute needs not to be a zero-sum game – ADR offers a forum for everyone to win in a faster, cheaper and mutually beneficial way of resolving such disputes.
These measures KRA has taken, with a complement from the Multi-Agency Task Team on corruption, will definitely lead to significant revenue growth as these efforts bear fruit.
It is our hope that they will not let up as Kenyans await improved funding for essential public services.