By Sam Alfan.
The High Court has ruled that any tax assessment created outside the Kenya Revenue Authority’s (KRA) iTax system is not legally valid.
Justice Moses Ado also held that taxpayers must file their objections through the same iTax platform for them to count under the law.
Judge upheld that Commissioner’s objection decision dated 29 January 2024 was issued within the statutory timelines prescribed under Section 51(11) of the Act which the taxman is demanding over Sh1.3 billion from Hanqing Zhao.
Justice Moses Ado further found that the Tribunal erred in finding that the objection decision was not made
outside the statutory timelines, it follows that the Tribunal equally erred in law in deeming KRA’s Objection as allowed under Section 51(11) of the TPA.
“I am persuaded that it would be unjust and contrary to the dictates of Article 159(2)(d) and Article 210 of the Constitution to simply uphold the Commissioner’s objection decision and thereby trigger enforcement of the entire tax demand of over Sh. 1.1 billion, without allowing the taxpayer to have its substantive objections ventilated and determined on their merits,” said the judge.
He noted that tax administration must balance legality with fairness. The object of determine the legality and timeliness of the Commissioner’s decision, not to foreclose the taxpayer’s right to be heard on the merits of its case.
The ruling arose from a Sh1.13 billion tax dispute between the Commissioner of Domestic Taxes and Hanqing Zhao, a supplier who was investigated by KRA for the period between 2018 and 2023.
KRA had issued Zhao with a tax assessment of Sh1.136 billion.
Zhao challenged it by sending a letter on September 29, 2023. But because the objection was not filed on the iTax platform, KRA treated it as invalid and issued a demand notice for the full amount.
After discussions between the parties, KRA allowed Zhao to file a late objection.
Zhao then submitted a formal objection through iTax on November 30, 2023. KRA later issued an objection decision confirming the tax but slightly reducing it to Sh1.129 billion.
Zhao appealed the decision before the Tax Appeals Tribunal, which ruled in his favour. The tribunal said KRA had missed the 60-day deadline required by law to issue an objection decision and that the objection had therefore been automatically allowed.
But judge Ado disagreed and explained that an objection only becomes legally valid once it is lodged through the iTax system, which automatically assigns a reference number and timestamp. This, the judge said, ensures a clear, traceable record.
Because Zhao’s first letter did not go through iTax, the court said the 60 days only started counting from November 30, when the formal objection was filed on the platform. KRA’s objection decision was therefore issued within time.
However, the court declined to simply reinstate KRA’s Sh1.1 billion tax demand saying doing so would be unfair, since Zhao’s substantive arguments had not been fully heard. Instead, the judge sent the case back to the Tax Appeals Tribunal for a fresh hearing.
“Accordingly, while I set aside the judgment of the Tax Appeals Tribunal delivered on 22
November 2024, I decline to uphold the Commissioner’s Objection Decision as final,” Justice Ado.
Instead, I direct that the matter be remitted to the Tax Appeals Tribunal for a fresh hearing and determination on the merits of the taxpayer’s appeal, in accordance with the law and procedure. Disposition.
