The Kitui County government has failed to clear various tax claims from the Kenya Revenue Authority amounting to over Sh1 billion.
The Tax Appeal Tribunal (TAT) has rejected an attempt by the provincial government to quash KRA’s claims, noting that it failed to satisfactorily comply with the provisions of the law by meeting the burden of proof under various tax laws.
The court added that the provincial government had not provided any evidence that the amounts claimed had been settled or an explanation for why the taxman’s claims had not been paid.
“Based on the foregoing analysis, the court finds that the appellant has failed to prove that the respondent erred in assessing the appellant under various tax headings except the application except 25 November 2022 for the period October 2020 to June 2022 which should be subject to reconciliation of accounts,” said the court presided over by Robert Mutuma.
Kitoy filed an appeal with the Thai Tax Authority after the Thai Tax Authority rejected its objection to three letters demanding payment of alleged income tax, withholding VAT and pay-as-you-earn dues.
The first letter was sent to the county administration on 24 November 2022, regarding income tax, withholding VAT and gross income tax of Sh101.4 million for Kitui and Mwenge municipalities.
The Kenya Revenue Authority sent another letter on November 25, 2022, demanding income tax deduction on rental and VAT deduction of Sh83.8 million based on alleged iTax ledger arrears.
The third letter was sent on 7 February 2023, regarding withholding of VAT, withholding of income tax and withholding of income tax on employment income totalling Shs873.6 million for the period May 2018 to December 2020 in Kitui County.
The county has objected to the taxes, saying they are baseless as the money was paid or that some of the payments requested relate to travel allowances and other payments that were tax-exempt.
The county government also challenged the figures arising from discrepancies in its bank account balances, insisting there was no discrepancy in the Kenya Revenue Authority’s accounts.
Furthermore, the Kitui County Government said it had provided evidence of the transfer from its grant account, asserting that the Kenya Revenue Authority failed to consider the said transfer, resulting in inaccurate tax claims.
The county confirmed that a significant portion of the required taxes had already been paid and accounted for and that the remaining balance of the required taxes related to payments that were stopped or cancelled from the Kenya Revenue Authority’s IFMIS system, especially towards the end of the financial year.
In response, KRA submitted an affidavit stating that the province is obliged to prove payment of taxes by providing supporting documents to show that the Payment Registration Numbers (PRNs) were paid when generated.
According to the Kenya Revenue Authority, the decentralized unit failed to provide any documentary evidence to support its case or provide proper bank reconciliation and proof of payment of taxes, without which the tax officer cannot determine whether the self-assessed tax was paid or not as implied.
In relation to the PAYE issue, the court said the county was required to provide bank statements to prove the corresponding disbursement transactions for various employees and salaried workers and receipts from the defendant as evidence of the financial transfers made.
It was noted that the county only provided Excel spreadsheets showing the transactions it made, but no bank statements or other primary documents supporting the transactions.
“Therefore, the court concluded that Article 43 of the VAT Law clearly stipulates the documents that the taxpayer must keep as evidence of transactions and which must be presented to the defendant upon request,” the court said.
In the Court’s opinion, Excel spreadsheets alone cannot be considered sufficient evidence of the disbursement of payments or transactions made by the taxpayer.
The court added that “there must be sufficient evidence to support the case, especially in cases where additional evidence is available that can be used or presented.”
It is not yet clear whether Kitwe has appealed the court’s decision.