By Dr. Kariuki Muigua, PhD (Leading Environmental Law Scholar, Policy Advisor, Natural Resources Lawyer and Dispute Resolution Expert from Kenya), Winner of Kenya’s ADR Practitioner of the Year 2021, ADR Publication of the Year 2021 and CIArb (Kenya) Lifetime Achievement Award 2021*
The KRA Alternative Dispute Resolution (ADR) Framework is “for the general guidance of the Stakeholders who wish to engage in Alternative Dispute Resolution (ADR) to resolve their tax disputes.” In essence, this means that the ADR Framework is not binding on the parties except until the parties agree to refer their dispute to ADR. Even then, the ADR Framework serves as a guidance allowing the ADR Facilitator the discretion to do what is necessary to resolve the dispute. Recently KRA had drawn the Draft Tax Procedures (Alternative Dispute Resolution) Regulations 2019 “to anchor the existing ADR Framework in law” and to govern the alternative tax dispute resolution ADR process. However, the Cabinet Secretary for National Treasury and Planning on 17th June 2020 enacted the revised regulations as Tax Procedures (Settlement of Tax Disputes out of Court or Tribunal) Regulations, 2020 which appear to be limited to settlement of tax disputes already instituted in court or tribunal.
The KRA ADR Framework, launched in June 2015 and revised in June 2019, provides an internal process for KRA and tax payers to amicably resolve and settle tax disputes outside the judicial process. The ADR Framework aims at complementing the judicial and quasi-judicial mechanisms for resolving tax disputes in the tax laws “by introducing ADR as an additional and/or alternative means of resolving tax disputes.” The ADR framework in the first five (5) years of its existence provided the only “reference point for the alternative tax dispute resolution process.” Importantly, the ADR Framework helped to achieve alternative dispute resolution of tax disputes as envisaged and proposed under Article 159 (2) (c) of the Constitution of Kenya, 2010, section 28 of the Tax Appeals Tribunal Act, 2013 and section 55 of the Tax Procedures Act, 2015.
However, with the enactment of the Tax Procedures (Settlement of Tax Disputes out of Court or Tribunal) Regulations, 2020, the place of the KRA ADR Framework is now exclusively in guiding alternative dispute resolution (ADR) under the KRA Internal Dispute Resolution Mechanism (IDRM) before or in lieu of referral to the tribunal or the court. The Framework acknowledges that it seeks to provide flexibility and eliminate “the limitations imposed by judicial and quasi-judicial processes and the complexity of technical procedures and high costs of litigation.” The ADR envisaged under the framework is a voluntary, participatory and facilitated discussion of a tax dispute between a tax payer and the commissioner.
Further, the KRA ADR Framework clarifies that it provides for ADR in the form of facilitated mediation and not arbitration as envisaged by the Arbitration Act (Cap 49 of Laws of Kenya). This is because the Facilitator of the ADR has no power to impose any decision regarding the outcome of the tax dispute. Under the Framework, “the parties are facilitated to find a solution to the dispute.” This form of ADR is favoured over litigation because it gives parties autonomy to achieve settlement of their tax disputes on their terms. This approach taken in the Framework has benefited from benchmarking against the experiences of many Tax Dispute Resolution Frameworks from the World.
According to KRA, ADR is preferable for resolving tax disputes in that it shifts focus from enforcement to trust and facilitation, avoids inordinate delays before conclusion of cases before courts and tribunals, is cost-effective and confidential especially where tax litigation has the possibility of having adverse impact on the business relations of the tax payer or may attract negative publicity for KRA. In addition, ADR is without prejudice as where the discussions under the framework cannot be used against any party without express agreement. ADR also helps to preserve relationships between KRA and tax payers and also ensures higher compliance levels as parties are more likely to abide by the negotiated outcome. It also removes the specter of uncertainty associated with tax litigation over the outcome of a tax case for both KRA & the taxpayer. Alternative Dispute Resolution (ADR) of tax disputes is also encouraged in compliance with the constitution principle on promoting negotiated settlement of appropriate disputes.
The ADR Framework expressly states that it does not negate the legal right of either party to appeal to the Tax Appeals Tribunal or the Court of Law. Thus, an aggrieved party must file appeal within the time stipulated under the law under the tax Procedures Act even despite launching ADR under the Framework. This creates a dilemma in that while parties are pursuing ADR under the framework, the time is ticking and the aggrieved party still has a duty to comply with the stipulated timelines for filling appeal. The end result is that most tax payers would rather file their Tax Appeal and then seek out of court or tribunal settlement than take the risk of pursuing ADR within the framework with the clock ticking against them.
The Commissioner is entitled to give a taxpayer the opportunity to engage ADR before issuing objection decision in case of a decision to amend assessment partially or decline to amend an assessment. In that regard, the timelines of the ADR are restricted to the time remaining in the time imposed by the Tax Procedures Act (of 60 days for Commissioner to make Objection Decision) and 30 days for Commissioner to make a review decision under the East African Community Customs Management Act (EACCMA) 2004.
The parties to ADR under the Framework are entitled to engage a tax agent or legal advisor to assist in the implementation of the framework. On the other hand, an ADR Facilitator provides guidance to the discussion and need not be an expert in tax or law. They convene and chair the ADR meetings, attest to the signing of ADR agreements and generally guide the parties towards arriving at amicable agreement. ADR Facilitators despite being mostly KRA employees are expected to maintain independence and must not have been involved in the tax audit or investigation. In event of conflict of interest, they are to make full disclosure and parties may request appointment of a new facilitator where necessary.
The ADR facilitators are bound to keep the process as simple and flexible as possible and as far as possible make it easy for each party to participate freely in the ADR discussions and adhere to the timelines. At the same time, they must remain neutral and maintain confidentiality of the process. The duty of the Facilitators is to seek fair, equitable and legal resolution of the tax dispute as well as promote and protect integrity, fairness and efficiency of the process. Facilitators must also act independently, impartially and avoid conflict of interest and bring the dispute to expeditious resolution.
In addition, the ADR Framework addresses issues of procedure during discussions. In this regard, it provides for adjournments, documentation of the dispute in ADR, management and procedure of ADR sittings, termination of ADR discussions and the signing of ADR Agreement and the prerequisites for validity of such agreement. The Framework also provides for reservation of rights by providing that discussions be held on without prejudice basis. Finally, the ADR Framework lays down the suitability test of tax disputes for ADR which limits the scope of the disputes that may be referred to the process to purely factual disputes devoid of legal complexities.
*This article is part of an ongoing series on Specialized Alternative Dispute Resolution in Kenya by Dr. Kariuki Muigua, PhD, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Publisher of the Year 2021 and ADR Lifetime Achievement Award 2021 (CIArb Kenya). Dr. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Dr. Kariuki Muigua is a Senior Lecturer of Environmental Law and Dispute resolution at the University of Nairobi School of Law and The Center for Advanced Studies in Environmental Law and Policy (CASELAP). He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Dr. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Africa Trustee of the Chartered Institute of Arbitrators and the Managing Partner of Kariuki Muigua & Co. Advocates. Dr. Muigua is recognized as one of the leading lawyers and dispute resolution experts by the Chambers Global Guide 2022.
References
KRA Tax Dispute Resolution Division, “Alternative Dispute Resolution (ADR) Framework,” Available at: https://kra.go.ke/images/publications/adr-framework.pdf (Accessed on 25/01/2022).
Ngummy, D. and Mwaniki, W., Settling Tax Disputes: A Closer Look at the Draft Tax Procedures (Alternative Dispute Resolution) Regulations, 2019, Anjarwalla & Khanna Legal Alert, Available at: https://www.africalegalnetwork.com/kenya/news/settling-tax-disputes/ (Accessed on 25/01/2022).
KRA, “Why Alternative Dispute Resolution?” Available at: https://kra.go.ke/en/individual/alt-dispute-resolution-adr/learn-about-adr/benefits-of-adr (accessed on 25/01/2022).