Valid and Invalid KRA Tax Objections
The Fine Line between Valid and Invalid Tax Objections: The Obama Enterprises Limited case
Last updated: August 29, 2023
Introduction
In a recent case heard and delivered before the Tax Tribunal in Kenya on the 9th day of September 2022, Obama Enterprises Limited (The Appellant), a company which distributes and sells Senator Keg, an alcoholic beverage manufactured in Kenya, filed an appeal against the decision of KRA (the Respondent) to issue additional assessments for Income Tax and Value Added Tax (VAT) for the period 2016-2020. Obama Enterprises Limited claimed that the notice of objection was valid, that the assessments were invalid, and that KRA erred by disallowing the input VAT claimed by Obama Enterprises Limited.
Obama Enterprises Limited argued that KRA had conducted a desk-top audit of its tax affairs, which culminated in a letter of findings dated 6 May 2021. As a result, Obama Enterprises Limited and KRA exchanged various correspondences and met several times to discuss the review's findings. Obama Enterprises Limited stated that it had provided all necessary explanations and documentation to KRA, however, KRA still issued additional assessments for the period reviewed on 15th, 16th, and 29th July 2021, despite Obama Enterprises Limited's objections.
KRA, on the other hand, argued that Obama Enterprises Limited had been given ample opportunity to provide records, explanations and further information prior to confirmation of the assessment. KRA stated that Obama Enterprises Limited failed to provide the necessary supporting documents within the stipulated timelines, and therefore the assessments were confirmed. KRA also claimed that the desk-top review was for the period 2017-2019, which was within the five-year statutory period for tax assessment.
The Tribunal upon identifying the issues falling for its determination made its findings as follows:
The notice of objection was invalid as it was lodged outside the statutory timeline of thirty days as provided for in section 51 of the Tax Procedures Act.
The assessments were valid and KRA did not contravene Section 23(10) of the Tax Procedures Act as the assessments were driven by inconsistencies between the supplier and purchaser information.
KRA did not err in disallowing input VAT claimed by Obama Enterprises Limited as Obama Enterprises Limited failed to provide the necessary documents as required by Section 17(3) of the VAT Act 2013 to prove the input VAT was recoverable.
The Tribunal noted that Obama Enterprises Limited failed to provide any or sufficient reasons for lodging the notice of objection outside the statutory timeline, and therefore the Commissioner could not exercise his discretion to enlarge time for lodging the notice of objection.
As a result, the Tribunal found that the Appeal lacked merit and made the following orders:
The Appeal is dismissed
KRA's tax assessment for the sum of Kshs. 112,587,452.65 for the years 2016 to 2019 is upheld.
Each party is to bear its own costs.
In conclusion
Written by Joseph Wachira
The author is a tax senior consultant and can be reached via wachira@cleartax.co.ke
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