Kenya Revenue Authority (KRA) has lost Sh791 million legal battle with mobile services provider Airtel Networks Kenya Limited.
In his judgment, Commercial Court Judge Alfred Mabeya said that it was unfair and illegal for KRA to demand from Airtel transactions records that were more than five years old for audit.
The Judge affirmed Tax Appeal Tribunal (TAT) finding that KRA had no right to demand Sh791 million.
“The legal position is that, all assessments ought to be made within five years except when there is evidence of gross or willful neglect, evasion or fraud on the part of the tax payer. The implication is that, after five years, since no assessment can be made, the taxpayer is absolved of his burden of maintaining such records,” said Justice Mabeya.
According to the judge, in tax matters, the onus of proving that an assessment is wrong always lies with the taxpayer.
He observed the belief behind taxpayers bearing the burden is that he or she has the documents or evidence for proving or disproving a tax liability.
The judge was of the view that KRA could have been allowed to carry out the audit after the timelines if it proved there was willful neglect, evasion, or fraud by Airtel.
In the case of Airtel, he noted that all that KRA needed to do was to make an assessment and wait for the telco to rebut.
However, he said, KRA could not explain why it conducted the assessment after five years despite knowing it was bound by strict timelines.
“In view of the foregoing, the court finds that the tribunal did not err in finding that the appellant did not sufficiently demonstrate that he had discharged his burden of proving that he was justified to render his assessment outside the statutory prescribed time limit,” he said.
Justice Mabeya also threw out KRA’s argument that Airtel owed it a duty of care.
The Judge was of the view that the government agency had not raised the same before the tribunal.
On October 9, 2018, KRA wrote to Airtel demanding an audit of the telco’s accounts for the years between 2013 and 2017. KRA’s interest was Airtel’s pay-as-you-earn and withholding tax records.
However, the audit was halted since KRA’s customs department was running another audit.
A year later, in 2019, KRA slapped Airtel with a Sh 791 million tax demand.
Following the demand, Airtel moved to the TAT. It argued that the taxman could not explain why it did the audit after a five-year period lapse.
The tribunal agreed with Airtel.
The judgment handed in on October 5 last year aggrieved KRA. It moved to the Commercial Court.
In its case, KRA argued that TAT erred by failing to find that KRA had already demanded the documents within the timelines and, hence, could not be blamed for a delay in the audit.
According to KRA, the firm was bound to ensure that it had all documents ready for assessment in order to fast-track the process.
It stated that Airtel had willfully failed to provide the documents necessary for the audit in good time and therefore responsible for the delay.
On the other hand, Airtel asked the court to dismiss the appeal. It argued that KRA ought to have adhered to the Tax Procedures Act. According to Airtel, the Kenyan Caesar knew that it could not pursue any tax demand after five five-year lapse.
It asserted that taxpayers have no duty of care to a public institution.
Justice Mabeya also slapped KRA with the cost of the case.