1. Introduction
Tax disputes in Kenya are common and are handled by the Tax Appeals Tribunal, the High Court, and the Court of Appeal. Two key legal principles guide these disputes:
- Burden of Proof – Who must prove their case (taxpayer or KRA)
- Standard of Proof – The level of evidence required to succeed
These principles determine how tax disputes are resolved and influence both compliance and enforcement.
2. Burden of Proof in Tax Cases
Primary Rule: Under Kenyan law, the burden of proof lies mainly with the taxpayer, though it can shift depending on circumstances.
Specifically:
- Section 56 of the Tax Procedures Act places the burden on the taxpayer to prove that a tax decision is incorrect.
- Section 30 of the Tax Appeals Tribunal Act requires the taxpayer (appellant) to show the assessment is excessive or the decision should have been made differently.
3. Burden of Proof in Customs Cases
Under Section 223 of EACCMA (2004), the importer or trader must prove proper payment of duties and legal movement of goods. KRA's statements are treated as prima facie (presumed correct) evidence.
Why the burden is on taxpayers: KRA assessments are presumed valid, governments depend on tax revenue, and taxpayers hold their own financial records.
Conclusion: In customs matters, the burden is even stricter on the taxpayer.
4. Judicial Interpretation (Case Law)
Courts consistently affirm that once KRA alleges non-compliance, the taxpayer must prove otherwise. Notable examples include:
5. The "Pendulum" Concept (Shifting Burden)
The burden of proof is dynamic and can shift between parties, often referred to as the pendulum concept.
Example: Commissioner v Pearl Industries Ltd (2020)
- Taxpayer provides documents → Burden shifts to KRA
- KRA challenges documents → Burden shifts back to taxpayer
The burden moves back and forth depending on the evidence presented throughout the dispute.
6. When the Burden Shifts to KRA
Although the taxpayer bears the initial burden, it may shift when:
Taxpayer provides credible documentation
KRA challenges evidence and must justify its position
KRA makes arbitrary or unclear assessments
Fraud is alleged (higher scrutiny required)
7. Procedural Fairness
Courts emphasize that KRA must act transparently, provide clear reasons for assessments, and avoid arbitrary decisions.
Balance: Even though the burden is on taxpayers, KRA must still act fairly and reasonably.
8. Standard of Proof in Tax Cases
A. Normal Tax Cases (Civil Standard): Balance of probabilities. The taxpayer must show it is more likely than not that KRA is wrong.
B. Fraud Cases (Higher Standard): Clear and convincing evidence is required. More than just invoices are needed; strong supporting documents and corroborative evidence (bank records, delivery notes) are essential.
9. Practical Implications
Record-Keeping: Taxpayers must keep records for at least 5 years. Poor documentation significantly weakens any dispute position.
VAT Compliance & Refunds: Taxpayers must prove actual transactions with payment receipts and delivery notes, not just invoices.
KRA Investigation Powers: KRA can conduct audits and request documents. However, once evidence is provided, KRA must respond with facts rather than assumptions.
Conclusion
The burden of proof is primarily on the taxpayer, and KRA assessments are presumed correct unless disproved. However, the burden is not fixed and shifts based on the evidence provided (the pendulum concept).
Practical Advice for Taxpayers
Maintain accurate records, ensure transparency in transactions, and always seek professional tax advice.
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