Judgment summary
The Appellant, a private limited company in the construction industry, appealed against an Objection Decision of the Kenya Revenue Authority dated 23rd September 2025, which confirmed additional VAT assessments for December 2024 and March 2025 totalling Kshs. 1,718,357.21 (para 4, 6).
The assessments arose from a comparison of sales declared in VAT returns against sales transmitted through eTIMS for December 2024, and a banking deposits analysis for 2025 (para 3, 10, 11).
The Appellant argued that much of the disputed income constituted client disbursements for procurement of construction materials, excluded from taxable value under Section 13(5) of the Value Added Tax Act, 2013, and that the Respondent's banking analysis improperly compared deposits from January to May 2025 against VAT returns covering only January to March 2025 (para 8, 23, 76).
The Tribunal held that the Appellant failed to produce sufficient documentary evidence, such as agency agreements, client instructions or reconciliations, to establish an agency relationship under Section 13(5), and failed to discharge the burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act (para 65, 66, 71, 85).
The Tribunal found the Objection Decision justified and dismissed the Appeal, upholding the assessments with each party bearing its own costs (para 86, 87).
Background
The Appellant is a private limited company incorporated in Kenya and engaged in the construction industry as a contractor (para 1).
The Respondent undertook a review of the Appellant's VAT compliance and, on 25th June 2025, issued a Pre-Assessment Notice for December 2024 and March 2025, alleging under-declaration of sales of Kshs. 8,400,958.62 (December 2024, based on eTIMS comparison) and Kshs. 2,344,500 (March 2025, based on a banking deposits analysis) (para 3).
On 23rd July 2025, the Respondent issued additional VAT assessments under Assessment Numbers KRA202594512057 (December 2024) and KRA202594512541 (March 2025), totalling Kshs. 1,718,357.21 (para 4, 12).
The Appellant lodged an objection, escalated for review before the Independent Review of Objections (IRO) on 28 July 2025, but the Respondent issued an Objection Decision dated 23rd September 2025 rejecting the objection in its entirety (para 5, 6).
The Appellant then filed the present appeal by Notice of Appeal dated and filed 3rd October 2025 (para 7).
Core dispute
The Appellant contended that the Respondent erred in law and fact by treating client disbursements, funds received to procure construction materials on behalf of clients and immediately remitted to suppliers, as taxable supplies, contrary to Section 13(5) of the Value Added Tax Act, 2013 (para 8a, 18).
The Appellant further argued that the Respondent erred by comparing bank deposits for January to May 2025 with VAT returns declared only for January to March 2025, rendering the banking analysis methodology flawed (para 8b, 23, 76).
The Respondent maintained that the additional assessments were properly raised under Section 12(1) of the VAT Act on the basis of eTIMS invoices and banking records, that the Appellant had not disputed transmitting the invoices, and that the Appellant failed to provide reconciliations or documentary evidence such as VAT ledgers, purchase ledgers, supplier confirmations and proof of payments to rebut the assessments (para 14, 33, 38, 45).
Court findings
The Tribunal found that although the Appellant asserted an agency relationship and relied on withholding tax certificates, bank statements, sales receipts, Z-reports and certified bank analyses, it failed to produce contemporaneous agency agreements, client instructions, procurement contracts, supplier confirmations or detailed reconciliations linking each disputed receipt to a particular client and corresponding supplier payment (para 63, 65, 71).
The Tribunal held that withholding tax certificates alone do not establish an agency relationship contemplated under Section 13(5) of the Value Added Tax Act, and that the statutory exclusion applies only where the taxpayer demonstrates it acted purely as an agent, incurring expenditure in the name and on behalf of the principal (para 64).
On the second issue, the Tribunal accepted that the Appellant raised a legitimate concern about the mismatch in periods used in the banking analysis, but held that this did not relieve the Appellant of its statutory burden to demonstrate the correct taxable position through proper reconciliations (para 76, 77).
The Tribunal found the Appellant failed to reconcile the variance between eTIMS invoices and VAT declarations, and failed to reconcile disputed bank deposits with client transactions, supplier payments, contractual documentation or agency arrangements (para 78).
The Tribunal concluded that the Appellant did not discharge the burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, and had not demonstrated that the assessments or the Objection Decision were erroneous or excessive (para 85).
Outcome
The Tribunal dismissed the Appeal in its entirety, finding it lacked merit (para 87i).
The Objection Decision dated 23rd September 2025 was upheld (para 87ii).
Each party was ordered to bear its own costs (para 87iii).
Major issues / areas of contention
- Whether the Appellant qualified as an agent under Section 13(5) of the Value Added Tax Act, such that client funds received for procurement of construction materials were excluded disbursements rather than taxable supplies.
- Whether the Respondent's Objection Decision dated 23rd September 2025 confirming additional VAT assessments of Kshs. 1,718,357.21 was justified.
- Whether the Appellant discharged the burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act to show the assessments were incorrect or excessive.
- Whether the Respondent's banking analysis methodology, comparing deposits for January to May 2025 against VAT returns for January to March 2025, was reliable.