The Treasury is seeking the creation of a Tax Court within the Judiciary to speed up the settlement of disputes between taxpayers and the Kenya Revenue Authority (KRA).
It wants to follow the US model where Tax courts settle more than 90 percent of cases where the Internal Revenue Service (IRS) has issued a deficiency notice — in which the government says individuals or businesses owe money in taxes.
The Tax Court will be akin to the Industrial and Land courts, which deal with employment and land suits, respectively.
This has been revealed in a draft National Tax Policy that proposes a raft of changes, including a new tax for farmers, setting minimum value-added tax (VAT) at 12 percent and review of tax laws every five years.
The tax court will have its judges who will travel to courts outside Nairobi to settle cases where the KRA has sued individuals or businesses or where the taxman is facing legal action.
Presently, the bulk of tax disputes in Kenya is channelled to the Tax Tribunal before they move to the High Court when a complainant is dissatisfied with a ruling.
This has resulted in lengthy and costly litigation as the taxman races to recover more than Sh300 billion in outstanding tax liabilities.
“I think it is an attempt to build better jurisprudence (rules) for tax cases and track appeal hearings under one court.
It will also help the KRA expedite cases and recover taxes,” said John Ohaga, managing partner at TripleOKLaw Advocates — a top commercial law firm.
“Tax matters take a very long time. I have been involved in one that took 10 years. It holds revenue for KRA for a long time and the taxpayer also has to set aside reserves that affect the business.”
Kenya will follow in the footsteps of countries like South Africa in establishing a Tax Court, which the US set up in 1924 and makes decisions that shape tax laws and guide corporate America.
The Tax Court in the US operates under a different article of the Constitution than most of the judicial branch does. It has its own distinct rules, including not having juries, rules of evidence are less stringent and its judges travel to dozens of cities to hear cases.
In Kenya, an aggressive KRA has seen tax matters elevated to the strategy table and boardroom.
The aggression is captured well by KRA’s recent closure of Keroche Breweries over crippling sums owed to the taxman.
The push for a Tax Court comes amid legal changes to the tax tribunal in efforts to delink it from the Treasury and the KRA as well as fast-track the conclusion of disputes.
The Judicial Service Commission (JSC) last month picked a 10-member team for the Tax Appeals Tribunal, two months after the Treasury Cabinet secretary lost the mandate of making the appointments.
The JSC received the powers to appoint members of the tribunal following the amendment to the Tax Appeals Tribunal Act, which came into force in March 2022.
Parliament had rejected a bid by the Treasury to hire staff of the Tax Appeals Tribunal and set their pay, terming it a threat to the arbitrator’s independence from the executive.
The legal changes also allow the tribunal to sit on a full-time basis marking a shift from the past where it held hearings part-time, leading to the piling up of unresolved cases that have, in turn, delayed the collection of taxes by the KRA.
“Provide for autonomy of the out of court process or out of Tax Appeals Tribunal process of dispute resolution by delinking the process from the KRA and establish a specialized tax court,” the policy reads.
Wealthy Kenyans and firms have denied the KRA more than Sh200 billion after challenging demands for tax payments through the appeals tribunal.
The KRA says the authority has witnessed a surge in taxpayers challenging notices for unpaid duty at the Tax Appeals Tribunal.
This has stalled enforcement actions like asset freeze, deactivation of Personal Identification Numbers, travel bans and prosecution that ultimately lead to the payment of unpaid taxes.
The authority has in recent months engaged in an aggressive crackdown on rich individuals and companies in the race to grow tax collections, netting thousands of tax cheats and evaders.
The onslaught on tax cheats has coincided with a jump in cases filed at the tribunal.
While at the tribunal, the taxman cannot enforce stiff measures contained in the Tax Procedures Act of 2015, which allows the taxman to issue travel bans on suspected tax cheats, and collect duty directly from suppliers and bankers of defaulters and prosecute those in arrears.
KRA is encouraging firms and high-net-worth persons to turn to Alternative Dispute Resolution (ADR) or settlement of disputes outside the court and the tribunal.
Through ADR, where disputes are settled within the KRA, the taxman hopes to resolve the differences swiftly and allow for the collection of agreed taxes.
The KRA has stepped up its fight against tax evasion and sought additional intelligence and enforcement officers to beef up the investigations of wealthy individuals and firms.
President Uhuru Kenyatta directed the revenue agency to hunt down wealthy individuals and firms that have for years evaded taxes and denied the country money to fund development projects.