Judgment summary
The Appellant, a company engaged in the manufacture and provision of steel, electrical, water hardware and telecommunications solutions, appealed against a Commissioner's objection decision dated 5th June 2025, issued after the High Court remanded the matter for reconsideration (paragraphs 1, 4).
The Tribunal considered whether the objection decision aligned with the High Court's orders, whether the Commissioner breached section 51(10) of the Tax Procedures Act by failing to give reasons, whether the correct corporate tax rate was applied for 2020, and whether the overall tax assessment was justified (paragraph 51).
The Tribunal found that the objection decision aligned with the High Court's orders (paragraph 62), that there was no breach of section 51(10) of the TPA (paragraph 71), that the Commissioner erred in applying a 30% corporate tax rate for the period 25th April 2020 to 31st December 2020 instead of 25% (paragraph 75), and that the Appellant had proved its realized foreign exchange loss on the sale of dollars but failed to discharge its burden of proof regarding the remainder of the assessment (paragraphs 80-87).
Background
The Appellant is a limited liability company engaged in the manufacture and provision of steel, electrical, water hardware, and telecommunications solutions (paragraph 1). The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act (paragraph 2).
The Appellant had previously appealed the Commissioner's objection decision to the Tax Appeals Tribunal in Appeal No 1316 of 2022, which was allowed on 22nd March 2024, setting aside the Commissioner's objection decision dated 23rd September 2022 (paragraph 57). The Commissioner challenged this at the High Court in Income Tax Appeal E112 of 2024, which delivered judgment on 8th April 2025, setting aside part of the Tribunal's judgment and referring the matter back to the Commissioner for reconsideration, taking into account all relevant documents produced before the Tribunal, with a fresh objection decision to be issued within 60 days (paragraph 3).
The Respondent issued a fresh objection decision dated 5th June 2025, revising the assessment from Kshs. 87,720,963 to Kshs. 73,669,642 (paragraph 34). Aggrieved, the Appellant lodged its Notice of Appeal dated 4th July 2025 (paragraph 5).
Core dispute
The Appellant argued that the Respondent's objection decision of 5th June 2025 exceeded the scope of the High Court's orders, applied an incorrect corporate income tax rate of 30% instead of 25% for the 2020 year of income, wrongly deemed non-revenue bank credits as taxable income and taxable supplies, failed to give reasons for rejecting documentation as required under section 51(10) of the Tax Procedures Act, 2015, and unlawfully disallowed foreign exchange losses contrary to section 15 of the Income Tax Act, 2013 and section 56(1) of the Tax Procedures Act, 2015 (paragraph 6).
The Respondent maintained that it had complied with the High Court's directions, that the Appellant had failed to provide sufficient documentation to support various bank credits across the 2017 to 2020 years of income, that the reduced 25% corporate tax rate did not affect the disputed portion of the assessment, that its objection decision complied with section 51(10) of the TPA, and that the Appellant had not discharged its burden of proof under section 56(1) of the Tax Procedures Act and section 30 of the Tax Appeals Tribunal Act (paragraphs 32-49).
Court findings
The Tribunal found that the Respondent's objection decision dated 5th June 2025 aligned with the orders of the High Court judgment delivered on 8th April 2025, as nothing in the High Court's orders limited the reconsideration to specific issues such as the inter-bank and related party loan repayment of Kshs 65,887,500 (paragraphs 59-62).
The Tribunal held that the Respondent did not breach section 51(10) of the Tax Procedures Act, finding that the law does not dictate the specific ingredients that must be contained in a reasoned objection decision, and that the Commissioner had provided a statement of findings and reasons (paragraphs 65-71).
The Tribunal found that the Respondent erred in applying a corporate tax rate of 30% for the period from 25th April 2020 to 31st December 2020, when the applicable rate following the Tax Laws (Amendments) Act, 2020 was 25% (paragraphs 72-75).
On the overall tax assessment, the Tribunal found that, save for the sale of dollars amounting to Kshs 60,055,638, the Appellant failed to discharge its burden of proof to show that the Commissioner's assessment was erroneous, noting that the Appellant had supplied unindexed and mismatched documentation without adequately relating it to the specific issues in dispute (paragraphs 80-87). The Tribunal found that the Appellant had proved that its foreign exchange loss on the sale of dollars was realised, and that this ought to be allowed, as the Respondent gave no reason in the objection decision, statement of facts or submissions for disregarding the supporting bank statements and RTGS documents (paragraph 80(f)).
On VAT, the Tribunal held that the sale of dollars, having been proved as a realized foreign exchange loss, could not be included as part of the under-declared vatable sales, but that the Appellant had not proved that the Commissioner erred in the remainder of the undeclared sales assessment (paragraphs 88-90).
Outcome
The Tribunal held that the appeal was partially merited and partially allowed it.
The corporation tax assessment for the period between 25th April 2020 and 31st December 2020 was set aside, while the corporation tax assessment for the period 2017 to 24th April 2020 was upheld.
The Respondent was directed to recompute the Appellant's VAT liability to exclude the realized forex losses from the vatable under-declared sales.
Each party was ordered to bear its own costs (paragraphs 91-92).
Major issues / areas of contention
- Whether the Respondent's objection decision dated 5th June 2025 exceeded the scope of the High Court judgment delivered on 8th April 2025.
- Whether the Respondent erred in law by applying a Corporation Tax rate of 30% for the 2020 year of income instead of the applicable 25% rate.
- Whether the Respondent erred in fact and in law by treating non-revenue bank credits as taxable income and taxable supplies.
- Whether the Respondent breached section 51(10) of the Tax Procedures Act by failing to give reasons for deeming the Appellant's documentation insufficient.
- Whether the Respondent erred in law and in fact by disallowing the Appellant's foreign exchange losses.
- Whether the Appellant discharged its burden of proof under section 30 of the Tax Appeals Tribunal Act and section 56(1) of the Tax Procedures Act.