Taxpayers must never be made to pay for KR's system failures

KRA staff assist clients in filing returns at its Nyeri office. [File, Standard]

If you’ve ever filed on iTax, you probably have a story to tell. A payment that ‘disappeared’ and reappeared as an outstanding balance. A penalty notice for a return you know you filed. A portal that logged you out mid-submission and left you to start over, unsure if the first attempt went through or not.

For most people, these are just frustrations; the cost of doing business with a government system that isn’t always reliable. But then what happens when one of these glitches doesn’t just waste your afternoon, but actually costs you money you don’t actually owe? Simply because the system, not you, made a mistake?

That question sits at the heart of several cases, including the one between Kenya Revenue Authority and Export Trading Company Limited (Petition 20 of 2020, [2022] KESC 31 {Supreme Court, 17/06/22}).

Allow me to focus on the answer given by Kenya’s highest Court.

Export Trading Company Limited, a company importing rice from Pakistan, was charged by KRA a tax rate of 35 per cent on its imports. This rate was applied automatically by KRA’s own computer system (Simba), which is supposed to charge different tax rates depending on which country goods are imported from.

The problem was that KRA’s system had a fault. It failed to correctly separate Pakistan, which qualified for the lower 35 per cent rate, from other countries that should have paid a higher rate of 75 per cent. This wasn’t something the company did but was an error inside KRA’s own technology.

Four years later, KRA came back and said: Our system made mistakes, so now you owe us the difference (about Sh500 million). The company refused and the case eventually reached the Supreme Court. KRA lost. Twice at the lower courts and again at the Supreme Court.

The court’s decision rested on a few legal ideas. I will explain them to you in a way you could easily follow.

1. a) Legitimate expectation: What this simply means, is that, if a government body creates a process, invites you to follow it and you do so honestly, the law says you’re entitled to expect that following it correctly will not later be held against you. The company had no way of knowing the system was miscalculating its tax. It relied, in good faith, on what KRA’s own system told it to pay. The court agreed that this created a legitimate expectation that it would not later be punished for a mistake it didn’t make.
2. b) Procedural fairness: This is the idea that government decisions affecting you must be reached through a fair process, not just produce a result that seems technically correct on paper. The court found that KRA’s decision to demand the money almost four years after the fact, without a proper explanation for the delay, was irrational, arbitrary and unfair.
3. c) Article 47 of the Constitution: This is the section of the Constitution that guarantees every person the right to administrative action (meaning decisions made by government bodies and officials) that is lawful, reasonable and procedurally fair. The court explained that this protection exists to safeguard people’s legitimate explanations of fair process, not just to serve as an empty promise. In plain terms, government bodies can’t just do what’s convenient for them; they have to follow a process that’s actually fair to the person on the other end.

In short, the court said KRA cannot build the system, let it make an error, allow years to pass and then quietly turn around and expect the taxpayer to pay for a fault that was never theirs to begin with.

It is very tempting to read this as a story about a single company and a technical customs dispute without understanding that the principle underneath applies to anyone who has ever dealt with a government digital system, which if we were to be honest, today is almost everyone.

iTax, eCitizen, NHIF, you name them, have really made life easier in many ways. But they’ve also created a new kind of risk: When a computer system is the only way to comply with the law, a fault in that system becomes, in effect, a fault in how the law gets applied to you.

The Export Trading Company case tells us how the courts think about this: When a government system makes a mistake, the person who relied on that system in good faith should not automatically be the one who pays for it. Fairness and accountability sit with the institution that built and controls the system, not just with the citizen who trusted it.

You need not be a rice importer, or run a business at all, for this to be relevant to you. The same reasoning actually applies to eCitizen payments that don’t register, NHIF contributions that vanish, or any government portal that takes your details, your time or your money and gives you an error message in return.

It’s a binding law by our courts that, when the system fails, the taxpayer shouldn’t be the one left holding the bill. So, the next time your instinct is to blame yourself for a glitch in a government portal, it's worth remembering the law may already be on your side.

The law is beginning to ask a question ordinary Kenyans have been asking for years now: If the system fails, why should you pay for it?

- Joy Wangari Gachu is a LLB student at the University of Nairobi and a legal intern at Havi & Company Advocates, with an interest in making the Law more accessible to the public