[2023] KEHC 19949 (KLR)

Katambo v Attorney General & another (Petition E532 of 2022) [2023] KEHC 19949 (KLR) (Constitutional and Human Rights) (30 June 2023) (Judgment)

Neutral citation: [2023] KEHC 19949 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Constitutional and Human Rights

Petition E532 of 2022

M Thande, J

June 30, 2023

Between

Henry Mutua Katambo

Petitioner

and

Attorney General

1st Respondent

Kenya Revenue Authority

2nd Respondent

Judgment

1. By his Petition dated 30. 11. 2020, the Petitioner seeks the following orders:1. A declaration be and is hereby issued that Section 56(1) of the Tax Procedures Act No. 29 of 2015 is unconstitutional and therefore null and void.2. An order be and is hereby issued quashing Section 56(1) of the Tax Procedures Act No. 29 of 2015 for being unconstitutional and therefore null and void.3. An order be and is hereby issued that costs of this Suit be provided for.4. Court may deem just to grant.

2. It is the Petitioner’s case that Section 56(1) of the Tax Procedures Act, 2015 (TPA) is unconstitutional because it provides that where a tax dispute arises, the burden shall be on the taxpayer to prove payment of tax or that an assessment or decision by KRA is incorrect. With the procedure imposing no evidentiary burden on KRA, it has made tax decisions and taken action that have caused great injury to taxpayers who are burdened with the task of proving that the assessments are incorrect or erroneous. He contends that the provision places the taxpayer at risk of falling prey to an inattentive practice and procedure by the KRA in arriving at its decisions. He further contends that the provision limits the enjoyment of the constitutional right to a fair trial which right should not be limited. It also limits the right of an arrested person without meeting the threshold set out in Article 24 of the Constitution. Additionally, the said provision contravenes Article 159(1) as it defeats the purposes, values and principles of the Constitution.

3. The 1st Respondent filed grounds of opposition dated 19. 1.23. The grounds are that the Petitioner has not demonstrated how the 1st Respondent has violated his constitutional sights as per the principle set in in the case of Anarita Karimi Njeru vs R (1976-1980) KLR 1272; that Section 56(1) is a legally enacted statutory provision enjoying the presumption of constitutionality and the burden to prove otherwise rests on the Petitioner, which burden has not been discharged; that the mere fact that a legally enacted statutory provision does not of itself satisfy an individual’s personal interests does not render the same unconstitutional; that the Petition threatens the legislative role of Parliament under Article 94(6) of the Constitution and seeks to restrict the National Assembly from carrying out its constitutional mandate; that the Petition is frivolous, vexatious, incompetent and improperly before court and an abuse of the court process.

4. The 2nd Respondent opposed the Petition vide a replying affidavit sworn on 14. 2.23 by Josephine Mugure, from an officer from its Corporate Policy Unit, within the Strategic, Innovation and Research Management Department. She deponed that KRA is mandated under Section 5 of the Act to inter alia administer and enforce all provisions of the written laws set out in Part 1 and 2 of the First Schedule for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws; that the Petitioner has alleged the contravention of Article 49 and 50 of the Constitution of Kenya but has utterly failed to further give particulars of the said contravention; that the Petition fails the test of specificity prescribed in the case of Anarita Karim Njeru v Republic (1979) eKLR; that in light of the foregoing, the instant Petition is defective and ought to be dismissed in limine.

5. It was further stated that tax laws are unique; that Kenya employs the system of self-assessment which is used almost all over the world. Under the system, the taxpayer initially decides the extent and amount of his tax obligation, based on their business model and circumstances. If the Commissioner disagrees with how much a taxpayer says he owes, it is for the taxpayer to demonstrate that their computation was actually accurate. In light of this tax model, the allocation of the burden of proof to the party in possession of the evidence is clearly appropriate and fair. The 2nd Respondent denied that the Commissioner issues assessments arbitrarily which the Taxpayer is needed to dispute by way of evidence. Pursuant to Sections 29, 30, and 31 of the TPA, the 2nd Respondent can only issue a default assessment, advance assessment and an amended assessment based on the available information and to the best of the Commissioner’s judgement. A taxpayer challenging an assessment will thus need to collect and present evidence in order to disprove the Commissioner’s position. By placing the burden of proof on the party in possession of relevant information, the possibility of destruction of adverse and/or crucial information is minimized and time is saved by making that party responsible for culling through its own records to meet its burden. Further to the foregoing, Section 23 of the TPA places an obligation on the taxpayer to maintain records and documents which can enable the Commissioner ascertain their tax liability. This section further extends this obligation to maintain records for a period of 5 years from the end of the reporting period to which it relates. Similarly, Section 43 of the VAT Act and Section 54A of the Income Tax Act require the taxpayer to keep records of his business. The responsibility of a taxpayer to maintain records cuts across the various tax heads and is properly founded in statute. As such it is only reasonable that the party in possession of the records does bear the burden of proof.

6. The 2nd Respondent further stated that in some instances, the onus may shift and once the taxpayer has made out a prima facie case to prove the facts, the onus then shifts to the 2nd Respondent to rebut the prima facie case. If the 2nd Respondent cannot provide any evidence to prove their position, the taxpayer will succeed. Further that the Commissioner’s determinations of tax deficiencies remain presumptively correct until the taxpayer produces competent and relevant evidence to support his position.

7. The 2nd Respondent thus stated that Section 56(1) of the TPA is not unconstitutional owing to the fact that the burden of proof shifts depending on the circumstances and the question of who bears the proof can only be determined on a case by case basis. Further that the government’s needs for revenue is further justification on placing of the burden of proof on the taxpayer. A tax system that places the burden of proof upon the government does little to encourage the preservation of records held by the taxpayer and would lead to easy concealment of tax obligation. Also, that Section 56(1) of the TPA Act enjoys the presumption of constitutionality. The Petition should therefore be dismissed with costs to the 2nd Respondent.

8. Section 56 of the TPA makes general provisions relating to objections and appeals. Subsection (1) of which the Petitioner complains provides:In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.

9. The Petitioner submitted that the said provision is unconstitutional as it places the burden of proving that a tax decision is incorrect, on a taxpayer. This, he contends, offends the provisions of Articles 49(1)(b) and (d), 50(1) and 50(2)(a) and (l). He relied on the case of Cyprian Andama v Director of Public Prosecution & another; Article 19 East Africa (Interested Party) [2019] eKLR in which Korir, J. (as he then was) stated:49. In the pretext of providing a defence, the impugned Section 66 of the Penal Code at subsection (2) disingenuously shifts the burden of proof from the prosecution to the accused person. The provision places the burden of establishing innocence on the accused person by stating that “it shall be a defence to a charge under subsection (1) if the accused proves that, prior to publication, he took such measures to verify the accuracy of the statement, rumour or report as to lead him reasonably to believe that it was true.” The requirement shifts the responsibility of proving innocence upon the accused person. Once the legal burden shifts it presents an issue of unconstitutionality for contravening the principle of presumption of innocence until the contrary is proved.The learned Judge went on to state:51. If the State (prosecution) cannot prove the falsity or otherwise of a statement with all the resources available to it, how can an accused person be able to do so? What the impugned provision does is to excessively limit the freedom of expression without any justification and to that extent it becomes unconstitutional.

10. It is well settled that there is a general presumption of constitutionality of statutes and there is a long line of authorities that enunciate this principle. In the oft cited Tanzanian case of Ndyanabo v Attorney General [2001] EA 485 at p. 493, the Court stated:[T]the constitution… is a living instrument, having a soul and a consciousness of its own … Courts must… endeavour to avoid crippling it by construing it technically or in a narrow spirit. It must be construed in (tune) with the lofty purposes for which its makers framed it… fundamental rights have to be interpreted in a broad and liberal manner… ensuring that our people enjoy their rights, our young democracy not only functions but grows, and the will and dominant aspirations of the people prevail.

11. The guiding principles in determining whether sections of an Act of Parliament are unconstitutional were succinctly laid out in the case of Institute of Social Accountability & another v National Assembly & 4 others [2015] eKLR by a 3-Judge bench of this Court as follows:56. First, this Court is enjoined under Article 259 of the Constitution to interpret the Constitution in a manner that promotes its purposes, values and principles, advances the rule of law, human rights and fundamental freedoms in the Bill of Rights and that contributes to good governance. In exercising its judicial authority, this Court is obliged under Article 159(2)(e) of the Constitution to protect and promote the purpose and principles of the Constitution.57. Second, there is the general presumption that every Act of Parliament is constitutional and the burden of proof lies on any person who alleges otherwise (see Ndyanabo v Attorney General of Tanzania [2001] EA 495). We therefore reiterate that this Court will start by assuming that the CDF Act 2013 is constitutional and valid unless the contrary is established by the petitioners.58. Third, in determining whether a Statute is constitutional, the Court must determine the object and purpose of the impugned statute for it is important to discern the intention expressed in the Act itself (see Murang’a Bar Operators and Another v Minister of State for Provincial Administration and Internal Security and Others Nairobi Petition No. 3 of 2011 [2011] eKLR, Samuel G. Momanyi v Attorney General and Another (supra)). Further, in examining whether a particular statutory provision is unconstitutional, the court must have regard not only to its purpose but also its effect.

12. The paramount principle to be applied by the Court in exercising judicial authority is to protect and promote the purpose and principles of the Constitution in accordance with the dictates of Article 159(2)(e) of the Constitution. To this end, the Court must in the first instance presume that the provisions of Section 56(1) of the TPA is constitutional and valid until the Petitioner proves otherwise. Thereafter, the Court must consider and determine the object and purpose of the impugned Section 56(1) of the TPA.

13. The reason the Petitioner seeks that Section 56(1) of the TPA declared unconstitutional, he argues, is because it contravenes Articles 50(2) (a) and (l), 49(1)(a) and (d) and 259(1) of the Constitution. Article 50(2) (a) and (l) provides that every accused person has the right to a fair trial, which includes the right to be presumed innocent until the contrary is proved and to remain silent, and not to testify during the proceedings. Article 49(1)(a) and (d) provides that an arrested person has the right to be informed promptly, in language that the person understands, of the reason for the arrest, the right to remain silent and the consequences of not remaining silent. Further, such person has the right not to be compelled to make any confession or admission that could be used in evidence against the person.

14. In the case of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR, Mativo, J. (as he then was) considered the issue of the onus of proof being on the tax payer in any objections and appeal proceedings. It is necessary to quote the Honourable Judge at length:31. The import of the above provisions is that the party with the obligation of persuasion (what Wigmore termed the risk of non-persuasion) is said to bear the burden of proof.[9] The flip side of the foregoing is the effect of non-persuasion on a party with the burden of proof which is that the particular issue at stake in the litigation will be decided against him/her. Generally, the taxpayer has the burden of proof in any tax controversy. The tax payer must demonstrate that the commissioner's assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect.32. The shifting of the burden of proof in tax disputes flows from the presumption of correctness which attaches to the Commissioner's assessments or determinations of deficiency.[10] The commissioner's determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position.[11] If the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented, with the burden of proof on the taxpayer.33. The other important issue to bear in mind is that under our system of self-reporting of tax liability, the taxpayer initially decides the extent and amount of his/her statutory obligation to pay tax. The taxpayer in such cases generally possesses the objective evidence. Certainly, with the exception of filed returns and information provided by the taxpayer, the Revenue authority is in a poor position to establish an affirmative case. The common-law allocation of the burden of proof to the party in possession of the evidence is clearly appropriate.[12] It has been argued that the allocation of the burden of proof to the party in possession of relevant knowledge surely meets this goal.[13] In the same parity of reasoning, where a tax payer pays tax in advance, and it turns out that it was an overpayment or the tax was not due, he/she can get a refund. It follows that payment of tax under such circumstances is not an admission of tax liability as the appellant’s counsel suggested.34. By placing the burden of proof on the party in possession of relevant information, the possibility of destruction of adverse information is minimized and time is saved by making that party responsible for culling through its own records to meet its burden. Placing the burden of proof on the government in tax cases would detract from these goals. Taxpayers might be tempted to destroy adverse relevant evidence and tax collection costs would increase because of the Revenue Authority’s difficulty in finding relevant information.[14]

15. In our tax regime where the taxpayer does a self-assessment of his tax liability, such tax payer is in possession of all the information. Flowing from the above cited decision, it can readily be seen that in the event of any tax tax dispute arising, the burden of proving that the self-assessment done by the tax payer is true, must rest on the taxpayer in whose possession the relevant information is. Placing the burden of proof on the tax payer also minimizes the possibility of destruction of adverse information. It also saves time and reduces costs as the tax agency would not then have to scour through the taxpayer’s records for relevant information.

16. The learned Judge went on to state:35. The uniqueness of tax laws is underscored by the fact that even where the constitutionality of such provisions has been challenged, courts have consistently held that placing the burden upon the tax payer is not unconstitutional nor is it contrary to Parliament’s intent.[15]This is because there is a distinction between the legal burden of proof and the evidential burden of prove. These are two different concepts. The Evidence Act places the burden of proving the existence any fact in issue on the party who asserts. The evidential burden exists in the form of a tactical onus to contradict, weaken or explain away the evidence that has been led. It is the latter form of burden which may shift from one party to the other.36. Placing the burden of proof in tax cases on the tax payer reflects the unique nature of the tax system. This is evident from the three-fold justifications for placing the burden on the tax payer. These are: - (a) the presumption of correctness; (b) the government's need for revenue’ and, (c) the taxpayer's possession of evidence. The taxpayer’s burden of proof comprises two parts: – establishing, with evidence, the underlying facts on which the law is to operate (and in this regard, the standard of proof to which each fact must be proved is relevant);[16] and – that the operation of the law when applied to those facts establishes that the assessment is excessive or erroneous.37. As was held in George v Federal Commissioner of Taxation,[17] “the burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year of income” and that “…in order to carry that burden he must necessarily exclude by his proof all sources of income except those which he admits. His case must be that he did not derive from any source taxable income to the amount of the assessment.” However, the manner in which a taxpayer can discharge the burden varies with circumstances.

17. As Mativo, J. stated, courts have consistently held that placing the burden of proof upon the tax payer is not unconstitutional nor is it contrary to Parliament’s intent. This is because of the uniqueness of tax laws. Flowing from the above decision, it can be seen that the rationale for placing the burden on the tax payer is first, the presumption of correctness. It is presumed that the tax agency’s tax assessment or determination of tax are correct. This presumption remains until the taxpayer produces competent and relevant evidence to rebut the presumption. Second, is the government's need for revenue. And, third, the taxpayer's possession of evidence a taxpayer who challenges an assessment by the tax agency, is required through the evidence in his possession, to disprove the assessment. This averts the temptation of a taxpayer to destroy adverse relevant evidence.

18. The decision by Mativo, J. has neither been appealed against nor overturned on appeal. I fully associate with it.

19. Section 56(1) falls within Part VIII which provides for Tax Decisions, Objections and Appeals. The provision is applicable in proceedings where a decision has been made and the taxpayer objects to, or appeals against such decision. This being the case, it then falls upon the tax payer challenging a decision or assessment to provide proof that the assessment is not correct. It cannot therefore be argued that placing the burden of proof contravenes the provisions of Articles 49(1)(b) and (d) and 50(2)(a) and (l) of the Constitution. In this regard I find support in the case of Robert K. Ayisi v Kenya Revenue Authority & another [2018] eKLR, where Odunga, J. (as he then was) considered the challenge of the constitutionality of Section 56(1) of the TPA and stated:98. It is however contended that the section is violative of Article 50(2)(a) of the Constitution which provides that:Every accused p2)rson has the right to a fair trial, which includes the right—(a)to be presumed innocent until the contrary is proved;99. It is important to note that the provisions of section 56(1) of the Tax Procedures Act come into effect after a tax payer has been assessed. Accordingly, it is my view that it cannot be argued that a tax payer who objects to such an assessment or appeals against the decision is to be treated in the same manner as an innocent person pursuant to Article 50(2)(a) since the objection or an appeal is directed at a decision already made which, unless set aside, is capable of being executed.

20. The burden of proof placed on a taxpayer under 56(1) of the TPA relates to a tax decision that has been made and which he challenges. This is distinctly different from a person presumed to be innocent pursuant to Article 50(2)(a) of the Constitution being shielded from incriminating himself. As such, there is nothing unconstitutional about a taxpayer being required prove that the tax assessment he challenges, is incorrect.

21. It must be noted that the constitutionality of Section 56(1) of the TPA has been the subject of judicial consideration, and this case is not new. The Petition herein is thus an attempt at flogging a horse long dead.

22. In the end and in view of the foregoing, I find and hold that the Petition herein lacks merit and is hereby dismissed. The circumstances herein do not call for an award of costs.

DATED AND DELIVERED IN NAIROBI THIS 30TH DAY OF JUNE 2023. ........................M. THANDEJUDGEIn the presence of: -…………………………………………… for the Petitioner…………………………………………… for the 1st Respondent…………………………………………… for the 2nd Respondent…………………………………………… Court Assistant