Judgment summary
The Appellant, Ruth Wangeci Mwangi, an insurance agent and broker, appealed against an Objection Decision issued by the Commissioner of Domestic Taxes on 26th September 2025, which confirmed principal tax liabilities of Kshs. 5,226,849 for the years 2019 to 2023 (paras 1, 5).
The dispute arose after the Respondent compared the Appellant's declared income with gross payments shown in withholding tax records and reviewed her claimed business expenses (para 3). The Respondent issued additional assessments, which the Appellant objected to, providing sample invoices, bank statements and loan statements (para 4).
The Tribunal considered whether the Objection Decision was justified, examining the adequacy of reasons given, the Respondent's reliance on withholding tax records for income, the disallowance of 60% of claimed expenses, the disallowance of capital allowances and loan interest, and the treatment of the Appellant's motor vehicle expenses.
The Tribunal found that the Respondent had statutory power under Sections 24(2) and 31(1) of the Tax Procedures Act, 2015 to amend the self-assessments, and that the Objection Decision met the minimum standard of reasoned decision-making under Section 51(10) of the TPA. Although the Respondent did not adequately explain the 40 per cent expense allowance or provide a revised computation, this did not establish the Appellant's correct liability, and the Appellant failed to produce primary records or an alternative computation to displace the assessment.
The Tribunal dismissed the Appeal, upheld the Objection Decision, and made no order as to costs (paras 110-111).
Background
The Appellant is a Kenyan citizen and resident of Nairobi, an insurance agent and broker registered in Kenya, engaged in sourcing, managing and maintaining insurance clients (para 1). The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 (para 2).
The dispute arose from a review of the Appellant's income tax affairs for the years 2019 to 2023, during which the Respondent compared declared income against gross payments in withholding tax records and reviewed claimed business expenses (para 3).
Following the review, the Respondent issued additional assessments. The Appellant objected, maintaining she had correctly declared income and expenses, and provided sample invoices, bank statements and loan statements (para 4). The Respondent issued its Objection Decision on 26th September 2025, confirming principal tax liabilities of Kshs. 5,226,849 (para 5). The Appellant lodged the Appeal by Notice of Appeal dated 26th October 2025, filed on 29th October 2025 (para 6).
Core dispute
The core issue for determination was whether the Respondent's Objection Decision was justified (para 65).
The Appellant argued that the Objection Decision was vague and lacked specificity, particularly regarding allegations of duplicated invoices and inconsistent serialisation, in breach of Section 51(10) of the Tax Procedures Act, 2015 and Article 47 of the Constitution of Kenya (paras 7a, 76).
She contended that the Respondent failed to properly consider evidence including bank statements, loan statements and business expense records, erred in disallowing capital allowances despite a wear and tear schedule being provided, mischaracterised the business use of her motor vehicle, and wrongly relied solely on withholding tax certificates rather than her sales ledgers and invoices to determine income. She also challenged the arbitrary allowance of only 40% of claimed expenses (paras 7b-j).
The Respondent maintained that it was entitled under Sections 24 and 31 of the TPA to amend the self-assessments using available information, that the Appellant had not discharged her burden of proof under Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act, and that the assessment enjoyed a presumption of correctness which the Appellant had failed to rebut (paras 35-43).
Court findings
The Tribunal held that the Respondent had statutory power under Sections 24(2) and 31(1) of the TPA to issue amended assessments using available information, though this did not by itself establish that the method or amount assessed was correct (paras 73-74).
On the adequacy of reasons, the Tribunal found the Objection Decision met the minimum standard under Section 51(10) of the TPA, as it identified the documents considered and the main defects, namely duplicate or inconsistent invoices, missing records, and failure to prove business use or connection between loans and the business (paras 78-79).
On income, the Tribunal found that bank statements without proper reconciliation to source documents did not prove the Appellant's income for each year, and the Respondent was entitled to rely on withholding tax records as the best information available (paras 84).
On expenses, the Tribunal noted examples supporting the Respondent's concerns, including a duplicated invoice number "INV006211" and a repeated Elian Hotels order number, and found the Appellant did not reconcile sample invoices and bank entries to the total expenses claimed (paras 87-90).
On the motor vehicle and capital allowances, the Tribunal found the Appellant did not provide a logbook, capital allowances schedule, mileage records or trip records, and the vehicle invoice deposit of Kshs. 1,450,000 did not establish the full purchase price (paras 91-93).
On loan interest, the Tribunal found the loan statements showed borrowing and repayment but not how the funds were used, and the Appellant did not provide a loan agreement, disbursement schedule or reconciliation tracing funds to business expenses (paras 94-95).
The Tribunal acknowledged that the Respondent did not adequately explain the 40 per cent expense allowance or reconcile the difference between the Pre-Assessment Notice figure of Kshs. 6,959,701 and the confirmed Kshs. 5,226,849, a difference of Kshs. 1,732,852, which weakened the Respondent's case but did not itself prove the assessment excessive (paras 96-99).
Ultimately, the Tribunal found the Appellant did not produce competent and relevant evidence, primary records or an alternative computation sufficient to displace the assessment or prove it excessive, and had therefore not discharged the burden under Section 56(1) of the TPA and Section 30 of the TAT Act (paras 103, 106, 108).
Outcome
The Tribunal dismissed the Appeal, holding that it was not meritorious (para 110).
The Respondent's Objection Decision dated 26th September 2025 was upheld (para 110).
No order was made as to costs (para 110).
Major issues / areas of contention
- Whether the Respondent's Objection Decision was justified.
- Whether the Objection Decision gave adequate reasons under Section 51(10) of the Tax Procedures Act, 2015 and Article 47 of the Constitution.
- Whether the Respondent properly considered the Appellant's evidence, including invoices, bank statements and loan statements.
- Whether the disallowance of capital allowances on the motor vehicle was justified.
- Whether the Respondent's reliance on withholding tax records to determine income, rather than sales ledgers and invoices, was justified.
- Whether the allowance of only 40% of claimed business expenses was arbitrary.
- Whether the loan interest expenses were deductible in the absence of a loan agreement or disbursement records.
- Which party bore the burden of proof and whether that burden was discharged.