Who Bears the Burden of Proof in a Kenyan Tax Dispute?

In a Kenyan tax dispute, the taxpayer who challenges a tax decision normally bears the burden of proving that it is incorrect. Section 56 of the Tax Procedures Act and section 30 of the Tax Appeals Tribunal Act place that burden on the taxpayer in the relevant proceedings. That does not mean KRA may assess tax without a legal or factual basis. It means a business that says an assessment is wrong must do more than disagree: it must identify the precise error and support the correction with admissible, contemporaneous evidence. The most useful response is therefore a disciplined reconciliation of the assessment to the law, transaction records and tax returns.

The statutory burden belongs to the taxpayer

Section 56(1) of the Tax Procedures Act, 2015 states that, in proceedings under the objection and appeal part of the Act, the taxpayer bears the burden of proving that a tax decision is incorrect. Section 30 of the Tax Appeals Tribunal Act states the same core rule for an appeal before the Tribunal. The allocation is practical: a taxpayer challenging a decision must put forward the material that demonstrates why the assessment, penalty, refund decision or other tax decision should be varied or set aside.

The burden is not confined to producing a large volume of documents. It is a burden of persuasion directed at the issue in dispute. If KRA has disallowed an expense, the taxpayer must connect the expense to the statutory test and prove the facts that satisfy it. If the dispute concerns omitted sales, the taxpayer must reconcile invoices, ledgers, bank entries, credit notes and returns to show why KRA’s figure is wrong. If the dispute is about classification, the taxpayer must establish the characteristics of the supply and apply the relevant definition or schedule.

In Robert K. Ayisi v Kenya Revenue Authority [2018] eKLR, the High Court considered the statutory allocation of proof in the context of an assessment. The wider point is settled: a tax assessment should be met with evidence rather than a bare assertion that it is excessive. The precise application remains fact-sensitive, particularly where the taxpayer contests KRA’s jurisdiction, the validity of a procedure, or whether the relevant tax law applies at all.

Burden of proof does not validate an arbitrary assessment

The taxpayer’s burden is not a licence for KRA to pick a number without an intelligible basis. KRA must still act within the charging statute and its assessment powers. The assessment should disclose the tax head, period, factual assumption and computation sufficiently for the taxpayer to understand what must be answered. Where records are incomplete, legislation may permit an assessment based on the available information; the answer is then usually a better evidential reconstruction, not a general complaint that KRA should have known more.

Kenyan courts have repeatedly distinguished the evidential burden from arbitrary administration. In Keroche Industries Ltd v Kenya Revenue Authority, the High Court stressed that the amount claimed must be due under the applicable law and recoverable through it. The case does not reverse section 56. It illustrates that legal authority, rationality and fair administration remain relevant even though the taxpayer must prove the asserted error in a tax decision.

That distinction helps to frame a case accurately. A complaint that the wrong VAT rate was applied, an invoice was counted twice, or a payment was omitted is ordinarily a merits issue that calls for a reconciliation and supporting records. A complaint that the wrong person was assessed, that no statutory power covered the transaction, or that the decision-maker acted outside the law may raise a different legal issue. Often both issues are present. They should be pleaded separately and supported with the records relevant to each one.

Match the evidence to the particular tax question

Evidence in a tax dispute is persuasive when it does a defined job. Financial statements may show an overall accounting position, but they rarely resolve a disputed tax item alone. The decision-maker usually needs the underlying trail: executed contracts, purchase orders, delivery records, invoices, payment evidence, customs records, payroll schedules, withholding certificates, stock records, bank statements and the filed return. The correct bundle changes with the tax and the factual proposition to be proved.

For an income-tax deduction, start with the actual expenditure, the recipient, the business purpose and the statutory condition. An invoice may establish that a supplier billed the business; bank evidence may establish payment; a contract and operational material may explain why the cost was incurred. For input VAT, a claimed amount must be tied to a qualifying acquisition and the statutory documentation. For a withholding dispute, identify the payment or credit, the recipient, the nature of the income and the time at which the statutory obligation arose. Do not assume that a commercial label resolves a tax classification.

Reconciliation is often more valuable than repetition. If an assessment uses deposits as sales, prepare a schedule that identifies each deposit, its source, its treatment in the accounts and the document that explains it. If KRA compared inconsistent reporting periods, map the assessment period against the accounting and filing periods. If a tax head has been paid, attach the payment reference and show exactly how it reduces the amount in dispute. A clear schedule allows the decision-maker to trace the taxpayer’s conclusion without having to reconstruct the case from a disordered archive.

Original records and reliable copies should be preserved. The Tax Procedures Act requires records to be kept for the statutory retention period, and ongoing proceedings may make continued preservation essential. If information was previously supplied to KRA, identify when, how and under what reference it was submitted. The fact that a document exists somewhere in a business system is not the same as putting it in a usable evidential form before the officer, Tribunal or court.

Build the objection around propositions that can be proved

Part 7 of this series addresses the procedural mechanics of objecting to an assessment. The evidential point is narrower: each ground should state the alleged error, the amendment sought and the proof that establishes it. A ground saying that the assessment is “unfair” or “excessive” is unlikely to carry the statutory burden without particulars. A stronger ground might identify an invoice incorrectly treated as undeclared income, give the amount and period, attach the credit note and bank trail, and show the revised calculation.

Consistency matters. The explanation in the objection should fit the return, accounts, statutory declarations, correspondence and later appeal documents. A new explanation is not necessarily false, but it will need a credible account of why the earlier record differs. Where a taxpayer relies on a special treatment, exemption, deduction or zero rate, it should make the statutory condition explicit and exhibit the documents that meet it. The Tribunal is not obliged to infer a favourable case from incomplete material.

Evidence should also be organised by issue rather than merely by date. A practical bundle may contain a chronology, the disputed decision, a calculation table, a schedule for each ground, source documents cross-referenced to the schedule, legal authorities and a witness statement from the person who can explain the underlying records. This is not a prescribed format. It is a way to make the taxpayer’s case testable and reduce the risk that decisive evidence is overlooked.

Where a point requires specialist explanation—valuation, transfer pricing, accounting treatment, inventory systems or technology—a business should consider whether independent expert evidence is necessary. Expert material must answer the legal and factual question in issue; it cannot simply replace the taxpayer’s own records. The strongest cases generally combine a coherent primary record with a focused explanation of what that record proves.

Use the burden as a preparation tool, not a slogan

It is tempting to treat section 56 as a statement that KRA always wins unless a taxpayer proves the opposite beyond any doubt. That is not a useful working approach. The legal standard is applied to the evidence before the relevant decision-maker. A taxpayer’s task is to demonstrate, on the proper civil standard, why the tax decision is wrong. The discipline of that task can improve an audit response before the dispute reaches a formal appeal.

Start by separating undisputed liabilities from contested items. Then build a single master reconciliation from KRA’s figure to the taxpayer’s figure. Assign a source document to every adjustment, record any information that is missing and explain why it is unavailable. Avoid backfilling records or presenting reconstructed schedules as though they were contemporaneous. If an estimate is unavoidable, disclose the method, assumptions and supporting data. Candour about an evidential gap is usually safer than an unsupported certainty.

• Copy every item in the tax decision into a working reconciliation.
• For each disputed item, identify the legal issue, factual proposition and source document.
• Match statements, invoices, contracts and payment records to the relevant tax period.
• Explain discrepancies between the return, accounts and the position now advanced.
• Keep proof that the evidence and objection were delivered to KRA.

The burden of proof does not make a taxpayer powerless; it defines the work that a challenge requires. A taxpayer who can trace each contested item from the statute to the transaction and then to reliable evidence is in a much stronger position than one who responds to a detailed assessment with broad objections. That evidence-led approach also preserves the record for a Tribunal appeal, while leaving distinct arguments about KRA’s powers or process to be made where the facts genuinely support them.

Official source: Tax Procedures Act, 2015 — section 56.