A SMARTER WAY TO RESOLVE TAX DISPUTES WITH KRA
Tax disputes can be stressful, expensive, and time-consuming. However, litigation before the Tax Appeals Tribunal (TAT) or the High Court is not always the only option. Kenyan law provides a structured and legally recognized mechanism known as Alternative Dispute Resolution (ADR) that allows taxpayers and the Kenya Revenue Authority (KRA) to resolve disputes amicably.
At Arichum Consulting, we assist businesses and individuals in navigating this process efficiently and strategically.
LEGAL FRAMEWORK FOR TAX ADR IN KENYA
ADR in tax matters is firmly grounded in law:
- Article 159(2)(c) of the Constitution of Kenya (2010) encourages courts and tribunals to promote alternative forms of dispute resolution.
- Section 55 of the Tax Procedures Act (TPA), 2015 empowers the Commissioner to establish mechanisms for resolving tax disputes through ADR at any stage before final determination.
- Section 28 of the Tax Appeals Tribunal Act, 2013 allows the Tribunal to refer a dispute to ADR either on its own motion or at the request of the parties.
- If a matter has reached the High Court, mediation may be invoked under Order 46 of the Civil Procedure Rules.
ADR is therefore not informal negotiation — it is a structured statutory process.
WHEN CAN ADR BE USED?
ADR may be initiated:
- After a tax assessment has been issued.
- After filing a Notice of Objection under Section 51 TPA.
- After an Objection Decision
- During an appeal before the Tax Appeals Tribunal
- Even at court level (with judicial approval)
However, ADR is generally unsuitable where:
- The dispute involves criminal tax fraud investigations
- The matter raises purely constitutional interpretation issues
- There is no genuine dispute on liability, only inability to pay
WHAT ISSUES ARE SUITABLE FOR ADR?
ADR works best where disputes involve:
- Tax computations and reconciliations
- VAT input/output mismatches
- Withholding tax credits
- Customs valuation disputes
- Penalty and interest mitigation
- Transfer pricing discussions
- Documentation discrepancies
It is particularly effective where the disagreement is factual rather than purely legal.
STEP-BY-STEP: HOW THE ADR PROCESS WORKS
Step 1: A Dispute Exists
There must be a live tax dispute — typically an assessment issued under Section 29 TPA and objected to under Section 51 TPA, or an appeal filed under Section 52 TPA.
Step 2: Application for ADR
The taxpayer (or KRA) submits a written request for ADR. If the matter is before the Tribunal, a formal request is made to the TAT.
Step 3: Approval of ADR
The Commissioner or Tribunal reviews the request. Under Section 55 TPA, ADR must not be used to unjustifiably delay tax collection.
Step 4: Appointment of Facilitator
An independent facilitator is appointed to guide discussions. The facilitator does not impose a decision but helps parties reach consensus.
Step 5: Negotiation & Reconciliation
Parties exchange documents, review computations, clarify legal interpretations, and explore settlement options. This stage is confidential and structured.
Step 6: Settlement Agreement
If agreement is reached, terms are documented and signed.
Step 7: Adoption & Closure
If the matter was before the Tribunal, the settlement is adopted as a Tribunal decision under Section 28 of the TAT Act, making it binding.
Step 8: Implementation
The taxpayer pays the agreed amount and complies with settlement terms. The dispute is formally concluded.
Key Advantages of ADR
- Faster resolution (often within 30–90 days)
- Reduced legal costs
- Confidential discussions
- Flexible solutions
- Opportunity to mitigate penalties and interest
- Preservation of business relationships
IMPORTANT LEGAL SAFEGUARDS
- Under Section 80 TPA, a taxpayer cannot be subjected to both administrative penalties and criminal prosecution for the same act.
- Under Section 89(3) TPA, administrative penalties become due only after written demand.
- ADR cannot override clear statutory tax obligations.
WHY CONSIDER ADR?
Litigation is adversarial and can take years. ADR provides a practical middle ground — structured, lawful, and solution-oriented.
For many businesses, ADR is not about avoiding tax. It is about:
- Correcting assessments,
- Reconciling data,
- Reducing exposure,
- And closing disputes efficiently.
Disclaimer
This article is provided for general informational purposes only and reflects the law as at January 2026. It does not constitute legal or tax advice. For guidance specific to your situation, consult a qualified tax professional.