20% Of Contested Taxes As Security Deposit Is A Barrier To Accessing Justice.

 Through stakeholder consultations, the KRA and the National Treasury have recommended amending the TAT Act to provide what they see as a medium ground. In essence, the KRA and the National Treasury wanted to change Section 32 of the TAT Act through the Finance Bill 2023 to include an "escrow mechanism" in the framework for tax controversy resolution. According to the proposal, if a taxpayer is unhappy with a Tribunal decision, they will be required to deposit at least 20% of the disputed taxes in an escrow account in favor of the KRA, before they can file an appeal with the High Court. 

 The right to a fair hearing is a fundamental principle of justice under Article 50 of the Constitution of Kenya that ensures individuals have the opportunity to present their case and be heard in a legal proceeding. Requiring the payment of part of the contested amount before a hearing may create a barrier for individuals or businesses with limited financial resources to exercise their right to challenge the tax assessment. It could be seen as placing a burden on the individual or entity to pay a portion of the disputed amount before having an opportunity to present their case, which could potentially limit their access to justice.

 According to Article 48 of the Constitution, the State must guarantee that everyone has access to justice, and if a fee is necessary, it must be fair and cannot prevent residents from accessing justice.  

 The assumption of innocence is also called into question if the taxpayer pays half of the disputed amount. A mandatory deposit before an appeal creates the presumption that the disputed amount is in fact payable, accused is entitled to the presumption of innocence and to the most favorable treatment under the law. This still infringes the right to a fair hearing where one needs to be presumed innocent until the contrary is proven. 

 The Supreme Court decision in Francis Karioko Muruatetu & another v Republic; Katiba Institute & 5 others (Amicus Curiae) [2021] eKLR lays a good foundation. The potential exists that an obligatory and arbitrary deposit before an appeal is filed is unconstitutional because it restrains the Judiciary ability to exercise judicial authority, as was the case with mandatory penalties that were declared unconstitutional. 

 In Uganda, there has been a lot of investigation into the problem of deposit payment. The legality of such a mandate has been questioned by the constitutional courts, who have also helped to advance clarification. In Fuelex (U) Limited v. Uganda Revenue Authority, the Court offered an intriguing viewpoint on the scope of the unconstitutionality of section 15 of the Tax Appeals Tribunal Act of Uganda, which compelled a person to pay 30% of the disputed tax when filing notices of objection. Insofar as it applies to all people equally, the Court ruled that the provision is unconstitutional 

How can we assist?

Navigating around the new changes proposed in the Finance Bill 2023 requires experienced legal knowledge and expertise.

At CM Advocates LLP, we have a team of experienced tax lawyers that offer legal tax advisory to ensure compliance in your business and tax dispute resolution services. For more information, please visit our website at www.cmadvocates.com or write to us at law@cmadvocates.com or taxteam@cmadvocates.com.