The Kitui County government has failed to quash various tax demands from the Kenya Revenue Authority (KRA) amounting to more than Sh1 billion.
The Tax Appeals Tribunal (TAT) dismissed an attempt by the county government to quash the demands by KRA, stating that it failed to satisfactorily comply with the provisions of the law by discharging its burden of proof by the various tax laws.
The Tribunal added the county government did not offer any evidence to show that the amounts being demanded were settled or an explanation as to why the claims by the taxman were not payable.
“Based on the foregoing analysis, the Tribunal finds that the Appellant failed to prove that the respondent erred in assessing the appellant under various tax heads save for the demand save for November 25,2022 for the period October 2020 to June 2022 which should be subjected to account reconciliation,” the Tribunal chaired by Robert Mutuma said.
Kitui appealed to TAT after KRA rejected its objection to three letters demanding alleged dues from income tax, withholding value-added tax (VAT), and pay-as-you-earn (PAYE).
The first letter was sent to the county administration on November 24, 2022, concerning income tax, Withholding VAT, and PAYE totaling Sh101.4 million for Kitui and Mwingi municipalities.
The KRA sent another letter on November 25, 2022, demanding Withholding Income Tax on rent and Withholding VAT amounting to Sh83.8 million based on alleged iTax ledger arrears.
The third letter was sent on February 7, 2023, regarding Withholding VAT, Withholding Income Tax, and PAYE totaling Sh873.6 million for the period from May 2018 to December 2020 in Kitui County.
The county disputed the taxes stating that they had no basis as the money had been paid or that some of the payments demanded related to travel allowances and other payments, which were tax-exempt.
The county government further disputed the figures arising from discrepancies between their bank account balances, asserting a non-existent variance in the KRA’s computations.
Further, the Kitui County Government said it provided evidence of remittance from their grant account, asserting that the KRA failed to consider the said remittance, which led to the inaccurate tax demands.
The county maintained that a significant portion of the taxes demanded were already paid and accounted for and that the remaining balance of taxes demanded pertained to payments that were stopped or canceled from the KRA’s IFMIS system, particularly towards the end of financial years.
In response, KRA submitted that the county was required to demonstrate that the taxes had been paid by providing supporting documents to show the Payment Registration Numbers (PRN) had been paid as generated.
According to KRA, the devolved unit failed to provide any documentary evidence to support its case or provide a proper bank reconciliation and proof of payment of taxes, and without such the taxman could not determine whether the self-assessed tax was paid or not as alluded.
On the issue of PAYE, the tribunal said the county was required to provide bank statements to demonstrate corresponding transactions of disbursements to different employees and wage workers and receipts from the Respondent as proof of remittances made.
It was noted that the county only provided Excel sheets showing transactions it had made but there are no bank statements and other primary documents supporting the transactions.
“Therefore, it is the Tribunal’s finding that Section 43 of the VAT Act clearly provides for the documents that a taxpayer should keep as proof of transactions and which ought to be presented to the Respondent upon request,” said the Tribunal.
In the Tribunal’s view, excel sheets on their own cannot be deemed as sufficient proof of payment disbursements or transactions by a taxpayer.
“There must be sufficiency of evidence in supporting, particularly in instances where further evidence is available to be availed and, or presented,” added the Tribunal.
It is not clear if Kitui has appealed against the decision by the Tribunal.
