Kenya Revenue Authority (KRA) has unlocked Ksh21.9 billion through the Alternative Dispute Resolution (ADR) mechanism. This follows the conclusion of 1,184 cases in the Financial Year 2023/2024.
This achievement is attributed to the improvement of the tax dispute resolution rate which grew from 78% in the financial year 2020/21 to 81% disputes completed using the ADR mechanism. The period for resolving disputes was also enhanced to an average of 38 days from the statutory period of 120 days.
Kenya ushered in ADR in April 2015 with the Tax Procedures Act, No. 29 of 2015, paving the way for the resolution of tax disputes between the Commissioner and taxpayers outside the traditional court systems. The process was instituted as an alternative to the legal mechanism under the Tax Appeals Tribunal Act, 2013 which was enforced as part of the business reforms aimed at boosting the country’s investment climate. Some of these methods include mediation, arbitration, and negotiation.
The ADR process commences with an appeal by the taxpayer to a tax decision made by the Commissioner or to an appealable decision as stipulated under the Tax Procedures Act of 2015. The dispute results in an appeal with the Tax Appeals Tribunal or Courts of Law. The process is a voluntary and participatory discussion over a tax dispute between a taxpayer and the Commissioner. These disputes are assigned a statutory period of 120 days for cases to be concluded or revoked if an agreement is not reached.
Disputes appropriate for ADR include but are not limited to those whose assessment has not been confirmed, cases in which an assessment has been confirmed but the parties mutually agree to undergo a self-review, or disputes that are before the Courts/Tax Appeals Tribunal but where the parties desire an out-of-court settlement. The model also allows for a taxpayer to apply for ADR even after taking the case to court.
ADR discussions may or can be terminated where either party opts to do so, if one or more parties believe that the dispute cannot be resolved due to undue conduct on the part of either party and when a party consistently fails to honour ADR meeting invitations when specifically requested to do so without any justifiable cause.
Once the ADR discussions have been terminated, both parties may proceed to have the matter determined by the Tax Appeal Tribunal or Courts, as if no ADR discussions had taken place at all.
KRA’s employment of this model has proven to be more cost-effective as it avoids extensive legal fees and prolonged litigation expenses. The process is shorter and quicker, compared to courts, which may take several years for a legal case to go to trial but with ADR, it only takes a few weeks or months to file an ADR consent.
Additionally, the model fosters higher compliance levels as both parties are more likely to abide by the negotiated outcome and are more willing to resolve disputes.
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