Alternative Dispute Resolution (ADR) in Tax Matters in Kenya
- Muhoro & Gitonga Associates
- Jan 30, 2024
- 5 min read
Updated: Oct 2
Table of Contents
Understanding Alternative Dispute Resolution (ADR)
Legal Framework Governing ADR in Tax Matters
Parties Involved in ADR in Tax Matters
The ADR Process in Tax Matters
Benefits of ADR in Tax Disputes
Limitations and Challenges of ADR in Tax Matters
Recent Developments in ADR for Tax Disputes
Landmark Cases on ADR in Tax Matters in Kenya
1. Introduction
Alternative Dispute Resolution (ADR) has emerged as a cornerstone in addressing tax disputes in Kenya. It provides a faster, cost-effective, and collaborative mechanism compared to litigation. The Kenya Revenue Authority (KRA) has embraced ADR as part of its compliance and dispute management strategy.
This article explores the legal framework, process, benefits, recent developments, and case law shaping ADR in tax matters in Kenya.
2. Understanding Alternative Dispute Resolution (ADR)
ADR refers to mechanisms for resolving disputes outside the traditional judicial process. In tax disputes, ADR primarily entails mediation and negotiation under a neutral facilitator appointed by the KRA.
The aim of ADR is not adversarial but consensual—encouraging taxpayers and KRA to resolve disputes amicably without lengthy litigation.
3. Legal Framework Governing ADR in Tax Matters
Article 159(2)(c) of the Constitution mandates courts and tribunals to promote ADR, including reconciliation, mediation, arbitration, and traditional mechanisms. This constitutional anchoring ensures ADR is not merely optional but integral to dispute resolution in Kenya.
Section 55 of the Act explicitly empowers the Commissioner of KRA to resolve tax disputes through ADR. This provision grants ADR statutory legitimacy in tax disputes.
These regulations outline the process for ADR, affirming that it is voluntary and may be initiated by either the taxpayer or the Commissioner. They emphasize timelines, eligibility, and confidentiality in ADR proceedings.
The Tax Appeals Tribunal (TAT) hears unresolved tax disputes but also facilitates referrals to ADR. This ensures disputes may be resolved at any stage of proceedings, reducing case backlogs at the tribunal.
3.5 Other Relevant Statutes and Guidelines
Additional legal instruments such as the Fair Administrative Action Act, 2015 and KRA’s published ADR Framework guide the conduct of ADR to ensure fairness and transparency.
4. Parties Involved in ADR in Tax Matters
Taxpayer: Must disclose all relevant facts and participate actively in negotiations.
Commissioner (KRA): Ensures the process is fair, transparent, and aligned with tax laws.
Facilitator: A neutral party appointed to guide discussions and maintain objectivity.
All parties must uphold confidentiality, mutual respect, and adhere to agreed timelines.
5. The ADR Process in Tax Matters
5.1 Initiation of ADR
Either party may file an ADR request using KRA’s prescribed application form, even if the dispute is already before TAT or a court.
5.2 Appointment of Facilitator
Once eligible, the Commissioner appoints a facilitator. The taxpayer may also appoint a co-facilitator at their own expense to enhance balance.
5.3 Conduct of ADR Meetings
The facilitator organizes meetings, allowing open discussion of issues. The aim is consensus—not confrontation—under a neutral environment.
5.4 Settlement Agreement
If consensus is reached, a binding ADR agreement is signed, witnessed by the facilitator, and enforceable against both parties.
5.5 Implementation of Settlement
The parties execute the terms of settlement. If ADR fails, the matter proceeds to TAT or court.
6. Benefits of ADR in Tax Disputes
6.1 Cost-Effectiveness
ADR significantly reduces legal fees and administrative costs compared to litigation.
6.2 Time-Saving
ADR typically concludes within months, unlike court processes that may span years.
6.3 Confidentiality
ADR proceedings are confidential, protecting sensitive taxpayer information from public scrutiny.
6.4 Flexibility
ADR allows customized solutions tailored to the dispute, unlike rigid judicial rulings.
6.5 Preservation of Relationships
ADR fosters cooperation, preserving professional relationships between KRA and taxpayers.
7. Limitations and Challenges of ADR in Tax Matters
ADR cannot override clear statutory provisions of tax law. Where the law is explicit, ADR cannot create exemptions.
The process may also fail if parties are unwilling to compromise or if there is power imbalance.
Finally, while ADR agreements are binding, enforcement may still require judicial intervention in cases of non-compliance.
8. Recent Developments in ADR for Tax Disputes
In recent years, KRA has expanded its ADR Framework to cover a wider range of tax disputes, including customs, excise duty, and transfer pricing.
The Finance Act 2023 introduced provisions encouraging pre-litigation ADR, reflecting government commitment to reducing tax litigation backlog. KRA has also launched digital ADR platforms to streamline applications and scheduling, making ADR more accessible.
9. Landmark Cases on ADR in Tax Matters in Kenya
9.1 Commissioner of Investigations and Enforcement v Estama Investments Limited [2020] KEHC 10245 (KLR)
The High Court was called upon to enforce a settlement agreement reached between a taxpayer and the Kenya Revenue Authority (KRA). The Court confirmed that ADR settlement agreements are binding and enforceable, provided they are entered into voluntarily and in good faith. This decision underscores the legal validity of ADR outcomes in tax disputes.
In this recent case, the High Court expressly encouraged parties to consider ADR, in line with Article 159 of the Constitution, which mandates courts and tribunals to promote alternative forms of dispute resolution. The decision reflects the judiciary’s policy direction of supporting ADR as a first recourse in tax and administrative disputes.
10. Conclusion
Alternative Dispute Resolution (ADR) in Tax Matters in Kenya. ADR has cemented its role in Kenya’s tax dispute resolution landscape, offering efficiency, confidentiality, and collaboration.
With constitutional, statutory, and regulatory backing, ADR is no longer an alternative but a mainstream avenue in resolving disputes.
Both taxpayers and the KRA benefit from ADR, making it an indispensable tool for a modern and efficient tax administration system in Kenya.
11. Frequently Asked Questions (FAQs)
Q1: Is ADR mandatory in tax disputes?
No, ADR is voluntary but strongly encouraged under Kenyan tax law.
Q2: Can ADR be initiated after filing an appeal at the Tax Appeals Tribunal?
Yes. ADR can be initiated at any stage, even during ongoing proceedings.
Q3: Are ADR agreements enforceable?
Yes. Once signed, ADR agreements are binding and enforceable in law.
Q4: What types of tax disputes can be resolved through ADR?
ADR covers income tax, VAT, excise duty, customs duty, and even transfer pricing disputes.
Q5: What happens if ADR fails?
The matter reverts to the Tax Appeals Tribunal or the courts for determination.
Q6: Does ADR save time compared to court cases?
Yes. Most ADR cases conclude within 90–180 days, unlike court cases that may last several years.
Q7: Who appoints the facilitator in ADR?
The Commissioner of KRA appoints the facilitator, but taxpayers may appoint co-facilitators at their own expense.
Q8: Is ADR confidential?
Yes. Proceedings and settlement agreements are confidential unless disclosure is legally required.
Q9: Can a taxpayer challenge an ADR settlement?
Yes, but only under exceptional circumstances such as fraud, coercion, or misrepresentation.
Q10: What is the future of ADR in Kenya?
With legislative reforms and digital adoption, ADR is set to become the dominant mechanism for tax dispute resolution in Kenya.
To learn more, please refer to the Kenya Revenue Authority Alternative Dispute Resolution Framework.
