THE UNFAIR PROPOSED AMENDMENT TO SECTION 32 OF THE TAX APPEALS TRIBUNAL ACT
The Finance Bill 2023, proposes to amend the Tax Appeals Tribunal Act, 2013 introducing a requirement for taxpayers to deposit with the Commissioner 20% of the tax in dispute or security equivalent to 20% of the disputed tax before they file an appeal to the High Court against a decision of the Tax Appeals Tribunal. In the proposed provision, section 32 of the Tax Appeals Tribunal Act is amended by inserting the following proviso to subsection “.…Provided that where a party is not the Commissioner, that party shall deposit with the Commissioner an amount equivalent to twenty per cent of the disputed tax or security equivalent to twenty per cent of the disputed tax before filing the appeal…”
Notably, this requirement to pay 20% of the disputed tax does not apply where the Commissioner or KRA is the one appealing to the High Court. The proposed amendment provides that once the High Court has ruled in favor of a taxpayer, the KRA is required to refund the monies or security equivalent deposited within 30 days after the determination of the court.
For a start, the Tax Appeals Tribunal Act provides the legal framework for any taxpayer dissatisfied with an appealable decision of the Kenya Revenue Authority. An appealable decision is not one which must necessarily succeed before the tribunal but one which ought to be argued before it. Currently, a taxpayer is only obligated to pay to the KRA taxes that the taxpayer may have conceded during this dispute resolution period, as provided in Section 52(3) b of the Tax Procedures Act, 2015 “…in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute, or has applied for an extension of time to pay the tax not in dispute…” All other contested taxes are only deemed payable upon a determination by the Tribunal as per Section 29 of the TAT Act or a finding by the High Court upon Appeal by a party aggrieved by the Tribunals finding.
If this provision is passed in its current form, the amendment to Section 32 of the TAT Act will bring to question the legality of payment of such deposit against the Constitutional provision of improved access to justice. Article 48 of the Constitution of Kenya compels the State to ensure access to justice for all its citizens. If any fee is required, the constitution states that it should be reasonable and not an impediment to access of justice.
In Fuelex (U) Limited v Uganda Revenue Authority where Fuelex Ltd lodged an objection with the TAT against an assessment by the Uganda Revenue Authority (“URA”) of Ushs. 160,525,530 arising in the period June 2005 to September 2006. Several issues were brought before the TAT for determination, among which was the constitutionality of the mandatory payment of 30% of the tax in dispute to the URA on appeal to the TAT. The TAT referred the matter to the Constitutional Court for interpretation.
The TAT phrased the following question to be determined by the Constitutional Court; Whether Section 15 of the Tax Appeals Tribunal Act (“TAT Act”) contravenes Articles 21 and 126 (2) (a) of the Constitution of the Republic of Uganda in as far as it requires a taxpayer who has lodged a notice of objection to pay 30% of the tax assessed, or that part of the tax assessed not in dispute, whichever is greater.
By a majority decision, the Court found that “Section 15 of the TAT Act in so far as it compels an objector to a tax assessment, whose challenge is not with regard to the amount of tax payable, to pay to the tax authority 30% of the tax assessed is inconsistent with Article 44 of the Constitution, hence it is unconstitutional”
The Court reasoned that; The right to a fair hearing cannot be compromised, limited or suspended by any other law such as the provision of the TAT Act and a law that requires one party to a civil dispute to pay 30% of the amount of money that has been determined as payable by the adverse party, places on the objector at a disadvantage, while the adverse party (“the URA”) at an advantage hence Section 15 defeats the main principles of a right to a fair hearing.
As per the proposed amendment in the finance bill, no matter how good a taxpayer’s case might be, once they do not have 20% of the tax being imposed, their objection cannot be heard. And once the opportunity to be heard is denied on account of failure to raise the 20% of the assessed tax, the KRA is at liberty to recover the whole of the disputed sum whether that amount is legally owing or not and irrespective of what decision the High Court would have made.
The bill proposes, after the determination of the appeal, the Commissioner is to “credit” that amount or security to that party within thirty days if the High Court determination is in favor of the taxpayer. The term “credit” is however unclear whether it implies that the amount shall be refunded to a taxpayer or it shall be credited to a taxpayer’s ledger as an advance tax.
The proposal assumes that tax disputes are purely based on quantum of tax amounts payable and ignores a possibility of a taxpayer having a legal or technical question that the court must address before any payment of demanded tax can be enforced.
Conclusion.
If the Bill is passed alongside this provision, there are no safeguards to protect the taxpayer from inflated assessments that would cripple their business operations. Further, it restricts a taxpayers’ access to justice as those that are unable to make the 20% security payment will be forced to cede their right to appeal.