A tax assessment generated outside the iTax system cannot be deemed a valid assessment under the law, the High Court has ruled.
Likewise, the court said an objection to a tax assessment must also be lodged through the same iTax system to be legally valid.
The court made the decision in a Sh1.13 billion dispute between the Commissioner of Domestic Taxes and Hanqing Zhao, an individual taxpayer dealing with general supplies.
According to the court, the iTax serves a critical statutory and administrative function as the prescribed electronic platform, ensuring that each objection is linked to a specific assessment, assigned a unique reference number, and bears an official time stamp indicating the precise date and time of lodgement.
‘These features provide the necessary transparency and certainty in the computation of timelines and tracking of objections under Section 51(11) of the Act,’ said the court.
In the matter, Kenya Revenue Authority (KRA) investigated the affairs of the taxpayer between 2018 and 2023 and issued a notice of assessment totalling Sh1.136 billion.
Unsatisfied, the taxpayer lodged an objection by letter on September 29, 2023 sent to the KRA’s mail. The taxman then issued a demand notice for the full amount assessed on the basis that no objection had been formally filed by the taxpayer on iTax.
However, following discussions between the parties and authorisation by the KRA for the filing of a late objection, the taxpayer eventually lodged a formal objection on the iTax portal on November 30, 2023.
After the objection was lodged on iTax, the Commissioner of Domestic Taxes issued a decision on the objection, confirming the tax liability but reducing it to Sh1.129 billion.
The taxpayer was still not satisfied and challenged the decision before the Tax Appeals Tribunal. After hearing the dispute, the tribunal ruled in favour of the taxpayer saying the commissioner’s objection was issued outside the 60-day period prescribed under Section 51(11) of the Tax Procedures Act.
KRA appealed to the High Court.
The court noted that the law governing objections to tax assessments provides that the commissioner must take a decision within 60 days of receiving a valid notice of objection.
If no decision is made within this timeframe, the objection is deemed to have been allowed by operation of law.
The court noted that Hanqing first lodged his objection through a letter.
‘Accordingly, it is the respondent’s position that the timeline within which the commissioner was to issue its objection decision expired on 28th November 2023, and therefore the commissioner’s objection decision of 29th January 2024 was made beyond the statutory timelines, with the consequence that its objection [the taxpayer] was allowed by operation of the law,’ the court said.
The court ruled that the 60-day period began when the taxpayer formally submitted the objection on the iTax platform, rather than from the earlier date of submission by mail.
The court said that objections transmitted through other means, such as personal or departmental email, lack the necessary attributes.
‘It is incapable of generating an auditable trail and exposes the process to ambiguity, dispute, and potential abuse,’ said the court.
The court found that the objection decision was not made outside the statutory timelines, and the tribunal, therefore, erred in setting aside the demand.
However, the court ruled that the decision could not stand, as it would be both unjust and contrary to the Constitution to simply uphold the commissioner’s objection decision and trigger the enforcement of the entire tax demand, without allowing the taxpayer to ventilate and determine their substantive objections on their merits.
‘Accordingly, while I set aside the judgment of the Tax Appeals Tribunal delivered on 22nd November 2024, I decline to uphold the commissioner’s objection decision as final. 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,’ the court ruled.