[2025] KETAT 174 (KLR)

Rae v Commissioner Domestic Taxes (Tax Appeal E343 of 2024) [2025] KETAT 174 (KLR) (Civ) (21 March 2025) (Judgment)

Neutral citation: [2025] KETAT 174 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal E343 of 2024

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

March 21, 2025

Between

George Otieno Rae

Appellant

and

Commissioner Domestic Taxes

Respondent

Judgment

1. The Appellant is a Medical Doctor who serves as a consultant in the Ministry of Health, consulting for the Pharmaccess Foundation.

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. The Respondent conducted a compliance review of the Appellant's tax declarations for the year 2017 to 2020. The Respondent then issued additional assessment dated 22nd November 2021 amounting to Kshs 3,663,012. 99 as principal tax in respect of Value Added and Income Tax- for the period from 2017 to 2020.

4. On 29th December 2023 the Appellant lodged a late objection on i-Tax. The Respondent reviewed the objection then issued its objection decision dated 26th February 2024 wherein it confirmed its assessments.

5. Dissatisfied with the Respondent’s decision, the Appellant filed the instant Appeal through the notice of appeal dated and filed on 25th March 2024.

The Appeal 6. The Appellant lodged its Memorandum of Appeal dated and filed on 25th March 2024 raising the following grounds of appeal:a.That the Respondent erred in fact and law to declared the objection to VAT and Income Tax- Company Assessments as having not been supported.b.That the Appellant availed the requisite documents as requested by the Respondent during the period of objections review.c.That the Respondent's grounds of rejection of the objection were inaccurate and the only document which the Appellant failed to avail is the comprehensive statement of Income for the period from January to December 2019 and 2021. d.That the invoices and statements of income are available and the Appellant will avail them to the Respondent for further review during the hearing of this appeal.e.That the Appellant is dissatisfied with the Respondent's computation of the taxes payable as per the objection decision dated 26th February 2024.

Appellant’s Case 7. In support of the appeal, the Appellant lodged his Statement of facts dated and filed on 25th March 2024. The Appellant failed to file his written submission by 16th December,2024 as directed by the Tribunal and therefore his case is as stated in his statement of facts.

8. The Appellant stated that on 22nd November 2021, the Respondent issued Income Tax and VAT assessments against him amounting to Kshs 3,663,012. 99 which he objected to on 29th December 2023 and the Respondent acknowledged receipt of his objection.

9. The Appellant affirmed that the Respondent requested the him to submit the support documents and sent reminders. The Appellant averred that he submitted copies of bank statements, expenses list, and sample invoice and that the Respondent proceeded to issue a full rejection objection decision on 26th February 2024, disallowing the income tax expenses claimed and confirming the VAT claimed for the period under review.

10. The Appellant asserted that he is ready and willing to provide any documents required by the Respondent for review and verification in order to determine the correct tax position. In light of the foregoing, the Appellant stated that the decision made by the Respondent did not reflect the right tax payable.

11. The Appellant prayed for the Honourable Tribunal to set aside the objection decision dated 26th February 2024.

Respondent’s Case 12. In response to the appeal, the Respondent lodged its Statement of facts dated and filed on 27th April 2024. The Respondent failed to file its written submissions by 16th December 2024 as directed by the Tribunal and therefore its case is based on its statement of facts.

13. The Respondent stated that it conducted a compliance review of the Appellant's tax declarations for the year 2017 to 2020. During the period of the assessment, the Respondent noted that the Appellant had done consulting work for Pharmaccess Foundation and earned income as per withholding tax certificates issued to him. Consequently, the Respondent on 22nd November 2021, issued additional assessment amounting to Kshs 3,663,012. 99 in respect of Value Added and Income Tax- for the period from 2017 to 2020.

14. According to the Respondent, the income tax assessment was based on unsupported expenses, local purchases and imports declared in the Appellant's income tax returns for the periods from 2017,2018, 2019 and 2020 financial years while the VAT assessments was based on under declared vatable sales during the respective periods. On 29th December 2023 the Appellant lodged his late objection on i-Tax. The Respondent then issued its objection decision dated 26th February 2024 confirming its assessments. The Appellant being unhappy with the decision, lodged this appeal.

15. The Respondent stated that whereas Section 24 of the Tax Procedures Act, CAP 469A of the Laws of Kenya (hereinafter “TPA”) allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent, who is not bound by the information provided therein and can assess for additional taxes based on any other available information. The Respondent stated that it issued the assessment based on disallowed expenses which the Appellant claimed were wholly used in generating the income.

16. The Respondent agreed with the Appellant that in taxing a taxpayer's income, every legally deductible expense that was incurred in generating such income should be deducted from the taxable amounts as provided under section 15(1) of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”).

17. According to the Respondent, the provision of section 15(1) of the ITA provides for deductions of expenses but it also gives antecedent conditions that must be met before such deductions are made. It asserted that the first condition is that such a deduction must be allowed under section 16 of the ITA. The second condition is that it must be an expenditure wholly and exclusively incurred by the taxpayer in the production of income from which it is to be deducted. The Respondent maintained that the Appellant failed to furnish documentation to prove the second condition.

18. The Respondent stated that a right to claim input VAT is premised on the assumption that the Appellant paid VAT during the purchase of his supplies as provided for under section 17(1) of the Value Added Tax Act, CAP 476 of the Laws of Kenya (hereinafter “VAT Act”). The Respondent also stated that section 17(1) of the VAT Act categorically provides that a taxpayer, in this case the Appellant is only allowed to claim input VAT only to the extent that the supply or importation acquired was used to make a taxable supply.

19. Further, the Respondent asserted that it is imperative for the Appellant to produce documents which when referred to, would inevitably lead the Respondent to believe that there was a commercial transaction. The Respondent cited section 17(3) of the VAT Act which provides for the documents required for one to be entitled to claim a refund.

20. According to the Respondent, the Appellant only provided copies of bank statements for the period 2019 and 2021, expense listing for the respective financial periods assessed, and sample copies of invoices. The Respondent perused the Appellant’s documents and noted the following:i.The Appellant failed to provide comprehensive statement of income for the periods assessed;ii.the bank statements availed for review were incomplete and insufficient to support the objection;iii.The sample invoices availed for review were inconsistent with the expenses listing availed and were not supported by proof of payment;iv.The Respondent could not verify that the expenses claimed were expended were wholly and exclusively incurred in the production of the Appellant's income;v.No copies of invoices were availed that were used to claim input VAT for the periods assessed and their proof of payments; andvi.That the Appellant failed to provide the sales ledger for the period from January to December 2021 as requested.

21. The Respondent relied on section 51(3) of the TPA which provides that for a Notice of Objection to be valid, the taxpayer must precisely state the grounds of objection, pay all the taxes not in dispute and provide all the relevant documents in support of the objection. The Appellant failed to do so. Further, the Respondent relied on the provisions of section 59(1) of the TPA which mandates the Respondent to require the production of documents from a taxpayer for the purposes of obtaining full information.

22. The Respondent also relied on the provisions of section 31(1) of the TPA which allows the Commissioner to amend an assessment from the available information and to the best of the Commissioner's judgement.

23. The Respondent asserted that the foregoing provisions emphasise the fact that the Appellant is bestowed with the mandate to avail the requisite documents in support of its objection and failure to which the Respondent can only make a decision in light of information in its possession. The Respondent added that this is why the Appellant was requested to submit documents to support his returns.

24. Further the Respondent relied on section 54A(1) of the ITA which provides that:‘‘A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold and accounts, books. deeds, contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax.’’

25. The Respondent further contended that the burden of proof is on the Appellant to produce the evidence challenging the Respondent's decision to confirm the assessments. It cited the following provisions of section 56(1) of the TPA:“The burden shall be on the taxpayer to prove that a tax decision is incorrect."

26. The Respondent averred that the documents annexed in the Appellant's Memorandum of Appeal and statement of facts had been presented before the Tribunal in the first instance and the Respondent had not had an opportunity to review the same.

27. Based on the foregoing, the Respondent urged the Tribunal to dismiss the appeal, uphold the Respondent's assessment and decision dated 26th February 2024, and award the Respondent the costs of the Appeal.

Issues for Determination 28. The Tribunal having carefully evaluated parties’ pleadings and documents is of the view that two issues that calls for its determination as hereunder:a.Whether the Appellant discharged his burden of proving that the Respondent’s decision dated 26th February 2024 was incorrect.b.Whether Respondent’s decision dated 26th February 2024 was justified.

Analysis And Findings 29. The Tribunal having determined two issues falling for its determination proceeds to analyse them as hereunder:

a. Whether the Appellant discharged his burden of proving that the Respondent’s decision dated 26th February 2024 was incorrect. 30. The law places the burden of proving that the decision of the Commissioner is incorrect pursuant to the following provisions of Section 56(1) of the TPA:“in any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”Section 30 of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) 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.’’

31. In the case of Singapore Motors Limited v Commissioner of Domestic Taxes (Income Tax Appeal E039 of 2021) [2024] KEHC 2443 (KLR), the High Court held as follows:‘‘This Court has remained emphatic that under section 30 of the Tax Appeals Tribunal Act (TATA) and section 56 of the Tax Procedures Act (TPA), the burden of proving that an assessment is wrong or excessive remains upon the taxpayer.’’

32. Further, in PZ Cussons East Africa Limited v Kenya Revenue Authority (2013) eKLR the court had the following to say at paragraph 9 and 10 with regards to burden of proof:‘‘9- in the case of Pearson v Belcher (supra) it was stated as follows; ‘...there is an assessment made by the Additional Commissioners upon the Appellant; it is perfectly clearly settled by cases such as Norman v Golder, 26 T.C. 293, that the onus is upon the Appellant to show that the assessment made upon him is excessive and incorrect; and of course, he has completely failed to do so. That is sufficient to dispose of the appeal, which I accordingly dismiss with costs.”’‘’10- I agree with the KRA that the burden would be upon the Company to show that the amounts taxed was excessive. But to that extent only.’’

33. In view of the provisions of Section 56(1) of the TPA, Section 30 of the TATA and authoritative precedents it was upon the Appellant herein to demonstrate through documentary or other evidence that the objection decision dated 26th February 2024 is erroneous.

34. The Tribunal notes that the Appellant in the first two grounds of his Memorandum of Appeal asserted that the Respondent erred in fact and law in declaring the objection to VAT and Income Tax Assessments as having been unsupported.

35. The Tribunal reviewed the Appellant’s pleadings to test the two grounds of the Memorandum of Appeal and noted that the Appellant filed one document to support the appeal—the objection decision dated 26th February 2024 which proves that the Respondent issued an objection decision. The Appellant did not file with his statement of facts, any other documents. The Tribunal noes that the appeal herein concerns deductible expenses pursuant to the provisions of Section 15 of ITA and a right to claim input VAT under Section 17 of VAT Act and such deductible expenses and other purchases must be supported by documentary evidence.

36. The Tribunal’s view is that the Appellant had to avail documents in support of deductible expenses incurred wholly and exclusively by him in the production of that income in compliance with section 15(1) of the ITA which provides as follows:‘‘15 (1) For the purpose of ascertaining the total income of any person for a year of income there shall, subject to section 16 of this Act, be deducted all expenditure incurred in such year of income which is expenditure wholly and exclusively incurred by him in the production of that income, and where under section 27 of this Act any income of an accounting period ending on some day other than the last day of such year of income is, for the purpose of ascertaining total income for any year of income, taken to be income for any year of income, then such expenditure incurred during such period shall be treated as having been incurred during such year of income.’’

37. The Tribunal notes that in regard to claiming input tax under section 17 of VAT Act, a taxpayer ought to adduce a number of documents depending on nature of business of the taxpayer and this is more particularly set out pursuant to the following provisions of Section 17 (3) of VAT Act:‘‘17 (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(d)a credit note in the case of input tax deducted under section 16(2);(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 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…’’

38. Section 13(2) of the 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—(a)A memorandum of appeal;(b)Statements of facts;(c)The appealable decision; and(d)Such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.’’

39. The Tribunal notes that lodging an appeal before it requires filing all materials and documentary evidence that the taxpayer placed before the Respondent for the Tribunal to re-examine. It is a waste of judicial time for the Appellant to have stated when before the Tribunal, that all documentary evidence were availed to the Respondent yet he failed to adduce the evidentiary documents before the before the Tribunal. Doing so reduces a statement of facts to a mere statement of averments. The only exception to this position is when the taxpayer is raising a pure point of law that does not require documentary evidence.

40. The Tribunal has examined the first two grounds of appeal at length. The third and fourth grounds of appeal are both admission of facts. The Appellant admits as follows”‘‘only document which the Appellant failed to avail is the comprehensive statement of Income for the period from January to December 2019 and 2021. ’’

41. In his fourth ground of appeal the Appellant stated as follows:“the invoices and statements of income are available and the Appellant will avail them to the Respondent for further review during the hearing of this appeal.’’An admission that he failed to provide the required documents.

42. The Tribunal having reviewed the Appellant’s pleadings and also having established that the Appellant only filed the objection decision finds that that it is difficult for the Appellant to succeed in claiming expenses pursuant to Section 15 of ITA and input VAT pursuant to section 17 of VAT Act.

43. Under the circumstances, the Tribunal finds and holds that the Appellant failed to discharge his burden of proving that the Respondent’s decision dated 26th February 2024 was incorrect.

(b) Whether Respondent’s decision dated 26th February 2024 was justified. 44. Having so determined that the Appellant failed to discharge his burden proving that the Respondent’s decision dated 26th February, 2024 was incorrect, the Tribunal finds that the Respondent’s decision dated 26th February 2024 was justified.

Final Decision 45. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal fails and makes the following Orders:a.The Appeal be and is hereby dismissed.b.The objection decision dated 26th February 2024 be and is hereby upheld.c.Each party to bear its own cost.

46. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 21ST DAY OF MARCH, 2025. ………………………………….CHRISTINE A. MUGACHAIRPERSON………………………….. …………….……………..BONIFACE K. TERER ELISHAH N. NJERUMEMBER MEMBER………….…..…………… ……….……..…………….EUNICE N. NG’ANG’A OLOLCHIKE S. SPENCERMEMBER MEMBER