Tax Dispute Resolution Process in Kenya

A Step-by-Step Guide to the KRA Audit & Tax Dispute Resolution Process in Kenya

Tax disputes are an inevitable feature of a modern tax system. In Kenya, the Kenya Revenue Authority (KRA) is empowered to audit taxpayers to ensure compliance with tax laws. However, these powers are not unchecked. The Tax Procedures Act, 2015 (TPA) establishes a structured audit and dispute resolution framework that balances revenue enforcement with the protection of taxpayer rights.

This article provides a practical, step-by-step guide to the KRA audit and dispute resolution process, anchored in statute and supported by judicial precedent.

1. Audit Notification

(Section 59, Tax Procedures Act)

The tax audit process formally begins when KRA issues a notice of intention to audit.

Section 59(1) of the Tax Procedures Act provides:

“The Commissioner may, by notice in writing, require a person to produce, for examination, at the time and place specified in the notice, any document that is in the person’s custody or control and that the Commissioner considers relevant for the purposes of a tax law.”

The audit notice typically specifies:

1. The tax head(s) under review (e.g. Corporation Tax, VAT, PAYE)
2. The period under audit
3. The documents and information required
4. The timeline for compliance

 Judicial guidance

Courts have consistently held that an audit must be conducted lawfully and procedurally. In Republic v Commissioner of Domestic Taxes Ex Parte Barclays Bank of Kenya Ltd, the High Court emphasized that statutory notices must be clear, specific, and issued strictly in accordance with the law.

2. Submission of Documents

Upon receipt of the audit notice, the taxpayer is required to submit the requested documentation within the stipulated timeline.

Commonly requested records include:

1. Financial statements
2. Bank statements
3. Payroll and PAYE schedules
4. Invoices and VAT records
5. Contracts and supporting schedules
6. Any other relevant records

Section 23 of the TPA places the burden of maintaining records squarely on the taxpayer.

“A taxpayer shall—
(a) keep records for a period of five years from the end of the reporting period to which they relate; and
(b) ensure that the records kept are sufficiently detailed to enable the person’s tax liability to be readily ascertained.”

Failure to provide records may result in KRA resorting to best-judgment assessments, which often work to the taxpayer’s disadvantage.

3. Audit Review & Reconciliation

(Section 59, TPA)

KRA reviews the submitted records and prepares audit findings, which are usually shared with the taxpayer through:

1. Audit queries, and/or
2. A draft audit findings report

At this stage, the taxpayer is afforded an opportunity to:

1. Reconcile discrepancies
2. Provide explanations
3. Submit additional evidence

This step is critical. Many disputes are resolved before assessment where taxpayers engage constructively and present complete documentation.

Judicial guidance

In Commissioner of Domestic Taxes v Total Kenya Limited, the court affirmed that KRA must consider explanations and evidence provided by the taxpayer before crystallizing an assessment.

4. Additional Assessment

(Section 31, TPA)

Where issues remain unresolved, KRA may issue an Additional Assessment.

Section 31(1) of the TPA states:

“The Commissioner may amend an assessment by making an additional assessment where the Commissioner considers that an assessment does not reflect the correct amount of tax payable.”

An additional assessment may include:

1. Principal tax
2. Penalties
3. Interest

Requirement to state reasons

Recent legislative reforms, including provisions introduced through the Finance Act, 2025, require KRA to clearly state the basis and reasons for any assessment. This enhances transparency and enables taxpayers to meaningfully exercise their right to object.

At this point, the taxpayer may either:

1. Accept the assessment and settle the tax, or
2. Formally object

 

5. Objection to Assessment

(Section 51, TPA)

A taxpayer who disagrees with an assessment may lodge a notice of objection within 30 days.

Section 51(2) provides:

“A notice of objection shall—
(a) be in writing;
(b) be lodged within thirty days of being notified of the decision;
(c) state precisely the grounds of objection, the amendments required, and the reasons for the amendments; and
(d) in relation to an objection to an assessment, be accompanied by the return of income and all the relevant supporting documents.”

Objections are reviewed through the Independent Review of Objections (IRO) mechanism, where:

1. The objection is reviewed independently
2. Both the taxpayer and the assessing officer make submissions
3. KRA issues a formal Objection Decision

 Judicial guidance

In Stanbic Bank Kenya Limited v Commissioner of Domestic Taxes, the court emphasized that objections must be substantive and evidence-based, and that unsupported objections may lawfully be disallowed.

6. Appeal to the Tax Appeals Tribunal

(Section 52, TPA)

If dissatisfied with the Objection Decision, the taxpayer may appeal to the Tax Appeals Tribunal (TAT).

Section 52(1) provides:

“A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act.”

At this stage:

• Alternative Dispute Resolution (ADR) may be applied where disputes are factual and both parties agree
• Where disputes involve legal interpretation, the Tribunal hears the matter and issues a binding decision

Judicial guidance

The courts have recognized the Tribunal’s technical expertise in tax matters. In Commissioner of Domestic Taxes v Menengai Oil Refineries Ltd, the High Court affirmed that the TAT is the primary forum for resolving tax disputes.

7. Appeals Beyond the Tribunal

(Sections 53 & 54, TPA)

Where a party is dissatisfied with the Tribunal’s decision, the matter may be escalated on points of law to:

1. The High Court
2. The Court of Appeal
3. The Supreme Court of Kenya

Section 56(1) of the TAT Act limits further appeals strictly to questions of law, reinforcing finality on factual determinations.

8. Final Resolution

A tax dispute concludes when:

1. The assessed tax is paid
2. A settlement is reached (including through ADR)
3. The matter is conclusively determined by the highest appellate court

The One Constant: Proper, Complete and Accurate Records

Across every stage of the audit and dispute process, one principle remains constant: Proper, complete, and accurate records speak for you. The burden of proof in tax matters largely rests with the taxpayer. Courts have repeatedly held that tax is assessed on evidence, not intention.

Parting shot

If the taxman reaches out—do not panic.

1. Cooperate
2. Engage early
3. Document everything
4. Seek professional advice

There is always a lawful way through the process.

At FHC, we support clients through tax audits, ensuring that taxpayer rights are protected while disputes are resolved efficiently and professionally.