[2025] KETAT 253 (KLR)

Browndot Enterprise Limited v Commissioner of Domestic Taxes (Tax Appeal E052 of 2025) [2025] KETAT 253 (KLR) (27 June 2025) (Judgment)

Neutral citation: [2025] KETAT 253 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E052 of 2025

CA Muga, Chair, BK Terer, E Ng'ang'a & SS Ololchike, Members

June 27, 2025

Between

Browndot Enterprise Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a Kenyan company with tax obligations.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. This matter filed as Miscellaneous Application No. E182/2023 but on 29th January 2025 the Tribunal directed the matter be allocated File Number E052 of 2025.

4. The genesis of this Appeal is that the Respondent undertook a VAT return review in respect of the Appellant’s records for the period from May 2019 to September 2022 wherein the Respondent established that the Appellant had claimed input VAT which could not be traced in the supplier's VAT return. On 13th December 2022, the Respondent issued a pre-assessment notice for VAT for the period under review followed by assessment orders dated 7th February 2023.

5. The Appellant lodged notices of objection on 1st March, 2023. The Respondent then rendered an objection decision dated 18th April, 2023 confirming the assessment for Kshs. 67,621,868. 25.

6. Dissatisfied with the decision, the Appellant filed this Appeal upon being granted leave by the Tribunal on 30th November 2023 to file its Appeal out of time.

The Appeal 7. The Appellant lodged the memorandum of appeal dated 22nd November 2023 and filed on 23rd November 2023 wherein the it raised the following grounds of Appeal:a.That the Appellant has no tax liability either as claimed by the Respondent or under any law for the period between January 2019 and the end of 2022. b.That the Appellant has proven that the assessment by the Respondent was wrong and erroneous.

The Appellant’s Case 8. The Appellant lodged its statement of facts dated 22nd November 2023 on 23rd November 2023. On 4th June 2025, the Tribunal directed that the Appellant’s case was to proceed on the basis of its pleadings since the Appellant failed to file its written submissions in compliance with earlier direction of the Tribunal.

9. The Appellant stated that the Respondent issued a pre-assessment under Section 31 of the Tax Procedure Act, CAP 469B Laws of Kenya (hereinafter “TPA”) dated 13th December 2022 and later issued another assessment dated 7th February 2023, both totaling Kshs 67,621,869. 00 on basis that the said amount was a tax due on the account of input VAT purchases made from missing suppliers for the period between January 2019 to December 2022. The Appellant also noted that the Respondent also disallowed the input VAT for the period between 2019 and 2022.

10. The Appellant asserted that it lodged an objection against the pre-assessment and assessments above on 1st March 2023 but the Respondent rejected the objection vide its Objection Decision dated 18th April 2023.

11. The Appellant stated that it was able and has provided proof that it had no tax liability for the period indicated by the Respondent and the assessment of Kshs 67,621,869. 00 is wrong and erroneous.

12. The Appellant prayed that the Tribunal do set aside the Objection Decision dated 18th April 2023 and the Agency Notices issued to the Appellant's business partners, clients and banks.

The Respondent’s Case 13. On 30th November 2023, the Tribunal directed the Respondent to file its statement of facts within 30 days and the Respondent failed to do so. Accordingly, the Tribunal has set aside the directions that it issued on 4th June 2025 wherein it adopted the submissions of the Respondent. The Respondent’s case is therefore undefended.

Issues for Determination 14. Having considered the Appellant’s pleadings, the Tribunal has identified a single issue for determination as hereinunder:Whether the Appellant discharged its burden of proving that the objection decision dated 18th April 2023 was incorrect.

Analysis and Findings 15. It is to this issue that the Tribunal will turn within:Whether the Appellant discharged its burden of proving that the objection decision dated 18th April 2023 was incorrect.

16. The Appellant stated that it was able to provide proof that it had no tax liability for the period indicated by the Respondent and the assessment of Kshs 67,621,869. 00 was wrong and erroneous. The tax law regime in Kenya establishes a legal presumption that the decision of the Commissioner is correct. In particular, Section 50(1) (a) of the TPA provides as follows:“50. Conclusiveness of tax decisions(1)Except in proceedings under this Part—(a)the production of a notice of an assessment or a document under the hand of the Commissioner shall be conclusive evidence of the making of the assessment and that the amount and particulars of the assessment are correct.”

17. The view of the Tribunal is that a taxpayer has a burden of coming forth with evidence to vanquish the legal presumption of correctness of the Respondent’s decision. In this regard, Section 56(1) of TPA places the burden of proof upon a taxpayer. The said law provides that, ‘In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.’’

18. The Court in Tumaini Distributors Company Ltd v Commissioner of Domestic Taxes (2020) held that the taxpayer has to demonstrate that the Respondent’s decision is incorrect. Unless a taxpayer is raising a pure point of law, it must adduce documents in support of the notice of objection to discharge its burden of proving that the decision of the Commissioner is incorrect. In addition, it should counter the legal presumption created under Section 50(1) (a) of the TPA. It is for this reason that Section 23 of the TPA requires a taxpayer to keep records. Section 23 (1)(b) and (c) of the TPA provides as follows:“a person shall—(b)maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained.’’(c)subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

19. The Tribunal notes that in the instant Appeal, the assessment was in relation to VAT. Section 43 (1) of the Value Added Tax Act, CAP 476 of the Laws of Kenya (hereinafter “VAT Act”) provides as follows in relation to keeping records:“43. Keeping of records(1)A person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept for a period of five years from the date of the last entry made therein.”

20. Further, Section 17(3) of the VAT Act provides for some of the documents that the Taxpayer is expected to tender when claiming input tax. Section 17(3) of the VAT Act provides as follows:“(3)The documentation for the purposes of subsection (2) shall be—(a)an original tax invoice issued for the supply or a certified copy;(b)a customs entry duly certified by the proper officer and a receipt for the payment of tax;(c)a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction; and(e)a debit note in the case of input tax deducted under section 16(5); or(f)in the case of a participant in the (d)a credit note in the case of input tax deducted under section 16(2);Open Tender System for the importation of petroleum products that have been cleared through a non-bonded facility, the custom entry showing the name and PIN of the winner of the tender and the name of the other oil marketing company participating in the tender:Provided that the input tax that may have been incurred by an oil marketing company participating in the Open Tender System before the coming into force of this provision shall be claimed within twelve months after this provision comes into force…”

21. From the foregoing, Section 23 of TPA, Section 17 and Section 43 (1) of VAT Act all require the taxpayer to keep records to facilitate determination of tax liability. The Tribunal further notes that the obligation to discharge burden of proof does not terminate at objection stage. The burden continues when the taxpayer files an appeal before this Tribunal. A taxpayer must adduce evidence to support its appeal and to enable the Tribunal to make a decision on the said appeal. In this regard, Section 13(2)(d) of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) provides as follows:“The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(d)Such other documents as may be necessary to enable the Tribunal to make a decision on the appeal. (emphasis is ours).”

22. Section 30 of the TATA expressly places the burden of proof upon a taxpayers’ shoulders. It provides as follows:“In a proceeding before the Tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently.”

23. The Courts have pronounced themselves on the issue of discharging the burden of proving that the decision of the Commissioner is incorrect. Since the tax regime in Kenya is based on self-assessment, a taxpayer must prove, through the production of evidentiary documentation, that the Respondent’s assessment is erroneous. The High Court in Commissioner of Domestic Taxes v Metoxide Limited (Income Tax Appeal E100 of 2020) [2021] KEHC 3 (KLR) held as follows regarding this position:‘‘15. ...section 56(1) of the Tax Procedures Act provides that; the taxpayer has the burden of proving that a tax decision is incorrect.16. It is common knowledge that, the Kenyan system of taxation is based on self-assessment. The tax payer assesses self and remits what he/it considers to be the tax due to the tax authorities.17. In this regard, the tax laws mandate the appellant to later on assess the tax payer in order to ascertain whether the tax remitted was proper or not. Ordinarily, the assessment is made years after the tax has fallen due and been paid or the economic activity or commercial transaction for which the tax arises has been undertaken. It is for this reason that the tax laws in this country shoulder the tax payer with the burden of disproving the correctness of the appellant’s tax decision.’’

24. Further, in Rongai Furniture Centre Limitedv Commissioner of Domestic Taxes (Income Tax Appeal E048 of 2023) [2025] KEHC 1124 (KLR) (Commercial and Tax) (27 February 2025) (Ruling), the court held that a taxpayer must provide documents when called upon to do so because the burden of proof is on the taxpayer to prove a tax assessment is wrong.

25. The Tribunal reviewed the Appellant’s pleadings and noted that the Appellant filed together with its pleadings, the following documents neither of which demonstrated that the decision of the Respondent was incorrect:a.The objection decision dated 18th April 2023. b.A letter dated 11th August 2023. c.Pre-assessment dated 13th February 2022. d.Notices of objection dated 1st March 2023.

26. Consequently, the Tribunal finds and holds that contrary to Section 56 (1) of the TPA and Section 30 of the TATA, the Appellant failed to discharge its burden of proving that the objection decision dated 18th April 2023 was incorrect.

Final Decision 27. The upshot to the foregoing is that the Appeal fails and the Tribunal proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 18th April 2023 be and is hereby upheld.c.Each party to bear its own cost.

28. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 27TH DAY OF JUNE, 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER