Gichengo v Commissioner Investigations and Enforcement [2024] KETAT 1268 (KLR)

Gichengo v Commissioner Investigations and Enforcement (Appeal E026 of 2023) [2024] KETAT 1268 (KLR) (9 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1268 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E026 of 2023

E.N Wafula, Chair, G Ogaga, Jephthah Njagi & E Ng'ang'a, Members

August 9, 2024

Between

Mary Muthoni Gichengo

Appellant

and

Commissioner Investigations And Enforcement

Respondent

Judgment

Background 1. The Appellant is a resident individual taxpayer.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. In a letter dated 19th August 2021, the Respondent informed the Appellant that it had determined the amounts of bank deposits in her accounts in the years 2016 to 2020, and assessed tax on the amounts.

4. The Respondent then issued the Appellant with income tax assessments for the years 2017 to 2020 on 16th December 2021.

5. The Respondent subsequently issued the Appellant with a tax demand dated 5th April 2022, and the Appellant filed a notice of objection on 8th April 2022.

6. On 25th April 2022, the Respondent informed the Appellant that her objection was invalid and requested for supporting documents to aid in validating the objection.

7. To validate her objection, the Appellant presented documentation for review by the Respondent on 4th May 2022.

8. Following further correspondence between the Appellant and the Respondent, on 27th June 2022, the Respondent requested the Appellant to furnish it with a proper notice of objection as per the provisions of Section 51(3) of the Tax Procedures Act.

9. In response to the Respondent’s request, the Appellant furnished the Respondent with a notice of objection on 28th June 2022.

10. The Respondent issued the Appellant with an objection decision dated 17th August 2022 confirming the taxes as due and payable.

11. Dissatisfied with the Respondent’s objection decision, the Appellant filed its Notice of Appeal on 2nd February 2023.

The Appeal 12. The Appeal is premised on the Memorandum of Appeal dated 1st February 2023 and filed on 2nd February 2023 which raised the following grounds:-a.That the Appellant gave an explanation and supporting evidence that the Respondent relied on creditors’ transactions or money deposits in the Appellant’s bank accounts to ascertain her taxable income, thus excessively overstating her tax liabilities.b.That the documents and explanations the Appellant provided were sufficient to determine the correct taxable income and tax liabilities.c.That the Respondent’s assertion that due to failure to avail material documents to attest to the actual business income it was forced to resort to alternative sources of information, that is, bank statements, is incorrect, and grossly unjust as its resulted to punitive and grossly overstated tax liabilities.d.That the Appellant provided a list of creditors and commissions earned which reconciled with the bank statements.e.That the Respondent’s decision to ignore the explanation of the nature of the Appellant’s business and supporting evidences and averment that the evidence was not sufficient to demonstrate commission broker is arbitrary, unreasonable and oppressive.f.That the Respondent’s assertions that lack of information to attest to actual business income forced the Respondent to resort to alternative sources of information is untrue, unfair and unjustified.

Appellant’s Case 13. The Appellant’s case is premised on the following documents filed before the Tribunal: -a.The Appellant’s Statement of Facts dated 1st of February 2023 and filed on 2nd February 2023 and the documents attached to it;b.The Appellant’s written submissions dated and filed on 11th October 2023.

14. The Appellant stated that as per the Respondent’s letter dated 19th August 2021, the Respondent wished to collect income tax and VAT plus penalties and interest based on the Appellant’s bank deposits.

15. The Appellant further stated that on 30th August 2021, she applied for income tax return amendments for the years 2016 to 2020, and that the same was approved and resultant taxes, interest and penalties paid.

16. The Appellant averred that on 16th December 2021, the Respondent posted grossly overstated additional assessments for the years 2017, 2018, 2019 and 2020 contrary to Section 31 of the Tax Procedures Act, disregarding and misunderstanding the nature of her business and the information on her business income in the amended self-assessments and supporting documents.

17. The Appellant stated that she received a demand letter on 5th April 2022, which she objected to on 8th April 2022.

18. That on 25th April 2022, the Respondent responded to the objection by requesting for supporting documents to validate the objection. The Appellant averred that on 4th May 2022, she provided a list of documents to validate the objection.

19. The Appellant stated that the Respondent issued a decision on 17th August 2022 confirming the additional assessments.

20. The Appellant averred that the Respondent erred in law and fact by relying on creditors’ transactions or money deposited into her bank accounts at Equity Bank. She maintained that she acted as an intermediary for buyers and sellers and that she would make payments on their behalf through the bank accounts upon receipt of goods.

21. The Appellant further averred that the Respondent did not undertake the verification of the amended self-assessments to ensure the Commissioner’s best judgement before issuance of the additional assessments as required under Section 31(1) of the Tax Procedures Act.

22. The Appellant averred that the Respondent erred in law and fact by imposing VAT since the nature of her business does not involve buying and selling, which was explained through documents supplied during the objection.

23. The Appellant submitted that the Respondent’s investigation should provide details of the commodity/stock/item description being traded or sold that result from the large sum of money received to enable the Honourable Tribunal disregard the fact stated by the Appellant that her nature of business is brokerage and the money banked is creditors’ funds. She supported her submission by referring to the case of Raghubar Mandal Harihar Mandal Vs State of Bihar (1957) & STC 770,778 (SC), where it was stated thus: -“No doubt it true that when the return and books of accounts are rejected, the assessing officer must make an estimate and to that extent he must make a guess but the estimate must be related to some evidence or material and must be something more than mere suspicion.”

24. The Appellant referred to the case of Hole Vs the Queen, 2016 TCC55 to challenge the bank deposit analysis method of assessment. The Appellant also cited the case Nairobi TAT No. 25 of 2016, Family Signature Limited Vs Commissioner of Investigations and Enforcement on whether the Respondent was justified in employing an alternative and indirect method of assessing the Appellant’s tax liability. In that case, the Tribunal held that:-“When the respondent is prompted to result to an alternative method of determining income and in assessing the tax liability of a taxpayer, it has the onerous responsibility to act responsibly by exercising best judgement informed by pragmatic and reasonable consideration that do not in any manner result to ridiculously high-income margin.”

Appellant’s prayers 25. The Appellant prayed the following from the Tribunal: -a.That the impugned decision contained in the Commissioner of Investigation and Enforcement objection decision dated 17th August 2022 plus all consequential orders thereupon be reviewed and set aside ex-debito justitiae.b.That the Tribunal finds that the assessments KRA202122766880, KRA202122767233, KRA202122774384, KRA202122774502 for years 2017, 2018, 2019 and 2020 are excessive, unfair, and contrary to the provisions of the Income Tax Act.c.That Honourable Tribunal finds that the forced registration of VAT obligation and assessments of VAT is contrary to Section 5 of VAT Act.d.That the costs of this Appeal be borne by the Respondent herein.

Respondent’s Case 26. The Respondent’s case is premised on the following documents:a.Its Statement of Facts dated and filed on 21st February 2023 and the documents attached to it; andb.Its written submissions dated and filed on 28th September 2023.

27. The Respondent stated that the dispute arose after it conducted investigations which involved the analysis of credits into the Appellant’s bank accounts, with a view to establish the taxable income and taxes payable after netting off the self-assessed amounts for tax purposes.

28. The Respondent further stated that the Appellant registered for income tax obligation on 3rd March 2005 but filed nil returns for this obligation in the years 2017, 2018, 2019 and 2020.

29. The Respondent averred that besides verifiable information from its databases, it also relied on information provided by third parties such as banks, open-source intelligence and the National Transport Safety Authority’s Transport Information Management System, which according to the Respondent, it deemed as accurate.

30. The Respondent stated that it analysed the Appellant’s bank accounts at Equity Bank and established that the Appellant received a total of Kshs. 111,040,016. 00 during the period under review but failed to declare the income.

31. The Respondent communicated to the Appellant vide a letter dated 19th August 2021 about taxes payable established from the bank analysis.

32. The Respondent then issued the Appellant with income tax assessments for the years 2017 to 2020 on 16th December 2021.

33. The Respondent subsequently issued the Appellant with a tax demand dated 5th April 2022 which the Appellant objected to on 8th April 2022.

34. That on 25th April 2022, the Respondent informed the Appellant that her objection was invalid and requested for supporting documents to aid in validating the objection.

35. The Respondent stated that on 4th May 2022, the Appellant presented documentation for review by the Respondent with a bid to validate her objection.

36. That after reviewing the documents presented, the Respondent issued the Appellant with an objection decision dated 17th August 2022 confirming the principal tax liability of Kshs. 55,078,408. 00 as due and payable.

37. The Appellant filed an Appeal at the Tribunal dated 2nd February 2023 being dissatisfied with the Respondent’s objection decision.

38. The Respondent summarised its issues for determination by the Tribunal as follows:a.Whether the Respondent was proper in law by relying on the Appellant’s bank accounts to raise assessments.b.Whether the Respondent’s charge to tax on the Appellant is justified.c.Whether there is a proper Appeal before this Tribunal.

a. On whether the Respondent was proper in law by relying on the Appellant’s bank accounts to raise assessments. 39. The Respondent stated that it was rendered with no alternative other than to resort to additional sources of information such as the Appellant’s bank records to ascertain the actual taxes due and payable by the Appellant.

40. The Respondent further stated that it conducted the banking analysis test which is based on the premise that money received must either be deposited or spent.

41. The Respondent asserted that the Appellant only provided schedules purporting to show amounts received from clients, creditor funds and vendor payments. That since the Appellant did not provide sufficient documentation, she did not support the assertion that she was involved in brokerage and that the monies in the bank did not constitute sales, therefore the Respondent treated the unexplained deposits in the bank statements as taxable income and computed taxes pursuant to Section 29 of the Tax Procedures Act.

42. The Respondent relied on the holding in Hole v. The Queen, 2016TCC 55 where the Court stated that: -“There are two primary ways in which a taxpayer can challenge a bank deposit analysis. The first is to prove that his or her records were adequate and thus that his or her income should have been determined using those records. The second, and more common, method is to challenge the actual determination of income made by the Minister under the bank deposit analysis.”

43. In support of its case, the Respondent referred to the case of Nairobi TAT No. 25 of 2016, Family Signature Limited vs. The Commissioner of Investigations and Enforcement, where one of the issues for determination was whether the Respondent was justified in employing an alternative and indirect method of assessing the Appellant’s estimated tax liability. That the Tribunal held that: -“47. When the Respondent is prompted to resort to an alternative method of determining the income and in assessing the tax liability of a taxpayer, it has the onerous responsibility to act reasonably by exercising best judgement informed by pragmatic and reasonable considerations that do not in any manner result in a ridiculously high-income margin.”“The Respondent's foregoing mandate was well captured by the apt observations in Raghubar Mandal Harihar Mandal V. State of Bihar 19521 8 STC 770,778 (SC), a case under the Bihar Sales Tax Act where it was stated thus:“No doubt it is true that when the returns and the books of account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess; but the estimate must be related to some evidence or material and it must be something more than mere suspicion.”The Appellant had the onus to demonstrate that the deposits in its bank accounts did not entirely constitute its business income by providing credible information on the sources of the amounts of the deposits and this was well captured in the decision of A. Govoindarajulu Mudaliar V. Commissioner of Hyderabad 1958-LL-0924 when Venkatrama Ayiar, J. stated as follows:"There is ample authority for the position that where an assesses fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the income tax officer is entitled to draw the interference that the receipts are of an assessable nature." It does not appear that any serious attempt was made by the Appellant to demonstrate that the bank deposits in issue were not income and hence exempt from tax.”

44. The Respondent submitted that it was therefore justified in applying the banking analysis method to determine the income earned by the Appellant during the period under review, as the Appellant failed to discharge the burden placed on her by the law to prove that not all the money in the account was income from her businesses.

b. On whether the Respondent’s charge to tax on the Appellant is justified. 45. The Respondent averred that upon conducting conclusive investigations, it established that the Appellant had met the threshold to be registered for VAT under Section 5 of the Value Added Tax Act.

46. The Respondent submitted that the Appellant did not comply with the requirement to maintain records pursuant to Section 23 of Tax Procedures Act, which provides that a person shall maintain any documents required under a tax law so as to enable a person’s tax liability to be readily ascertained.

47. The Respondent issued a tax demand to the Appellant upon establishing that the Appellant registered for income tax but filed nil returns for this obligation in the years 2017, 2018, 2019 and 2020 and failed to file any returns for the years 2015 and 2016.

48. The Respondent invalidated the Appellant’s objection to the tax demand on the grounds that the Appellant did not support the same as required under Section 51(4) of the Tax Procedures Act.

49. The Respondent submitted that whereas Section 24 of the Tax Procedures Act allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent, the Respondent is not bound by the information provided therein and can assess for additional taxes based on any other available information.

50. The Respondent submitted that in the United States case of Holland V United States 121(1954), the Supreme Court held: -“…to protect the revenue from those who do not render true accounts, the Government must be free to use all legal evidence available to it in determining whether the taxpayer's books and records accurately reflect his financial history" and that the indirect method used need not be exact, but must be reasonable in the light of surrounding facts and circumstances.”

51. It was the Respondent’s case that it was justified in issuing the assessment based on the supporting documents provided by the Appellant, information available to it and based on its best judgement.

52. In submitting that the Respondent applied its best judgment, the Respondent made reference to the decision in TC/2017/02292 Saima Khalid Appellant vs the Commissioners for Her Majesty’s Revenue & Customs Respondents.

53. From the foregoing, the Respondent submitted that the assessment issued on 17th August 2022 was justified, based on information available to the Respondent and was made based on the Commissioner’s best judgement.

c. Whether there is a proper Appeal before this Tribunal. 54. The Respondent submitted that there is no proper Appeal before this Honorable Tribunal for determination as the Appeal herein was filed out of time without the leave of the Tribunal contrary to the provisions of Section 13(3) and (4) of the Tax Appeals Tribunal Act.

55. The Respondent argued that in the Appeal herein, the Respondent issued its decision vide letter dated 17th August 2022 of which the Appellant herein had 30 days to lodge an appeal at the Tribunal if she was dissatisfied with the same. That the Appellant filed the Appeal at the Tax Appeal Tribunal on 2nd February 2023 which is a delay of over 5 months.

56. The Respondent submitted that where there is a laid down procedure as well as set timelines for performing an action under legislation, those affected by the respective legislation have to adhere to the same at all times without default, failure to which the law will not come to their rescue. In so submitting, the Respondent referred to the holdings in the following cases: -a.Speaker of the National Assembly v James Njenga Karume |1992| eKLRb.TAT Appeal 254 of 2021 Salva Global Investment Co. Limited Vs. Commissioner of Domestic Taxes.

Respondent’s prayers 57. The Respondent prayed that:a.The Appeal be dismissed for lack of merit.b.The objection decision dated 17th August 2022 be upheld.

Issues for Determination 58. The Tribunal has considered the facts of the matter and the submissions made by the parties and is of the view that the issues calling for its determination are as follows:a.Whether there is a valid Appeal before the Tribunal.b.Whether the Respondent was justified in issuing its objection decision dated 17th August 2022.

Analysis and Findings 59. The Tribunal will proceed to analyse the issues that call for its determination as hereunder.

a. Whether there is a valid Appeal before the Tribunal. 60. The Respondent submitted that there is no proper Appeal before this Honorable Tribunal for determination as the Appeal herein was filed out of time without the leave of the Tribunal contrary to the provisions of Section 13(3) and (4) of the Tax Appeals Tribunal Act.

61. The record of Appeal at the Tribunal shows that on 11th October 2023, the Appellant filed an application seeking leave of the Tribunal to lodge its Notice of Appeal and the Appeal out of time.

62. On 22nd March 2024, the Tribunal granted the Appellant leave to file its Notice of Appeal and the Appeal out of time.

63. Based on the foregoing, the Tribunal finds that this Appeal is validly lodged.

b. Whether the Respondent was justified in issuing its objection decision dated 17th August 2022. 64. The Respondent investigated the tax affairs of the Appellant for the period between 2015 and 2020 resulting in a letter dated 19th August 2021 in which the Respondent informed the Appellant that it had determined the amounts of bank deposits in her accounts in the years 2016 to 2020, and assessed tax on the amounts.

65. The Appellant and Respondent exchanged correspondences that led to the Appellant submitting to the Respondent a notice of objection on 28th June 2022, which the Respondent validated and subsequently issued an objection decision dated 17th August 2022 confirming the taxes as due and payable.

66. Dissatisfied with the Respondent’s objection decision, the Appellant appealed the decision to the Tribunal.

67. In arguing its case, the Appellant averred that the Respondent posted grossly overstated additional assessments for the years 2017, 2018, 2019 and 2020 contrary to Section 31 of the Tax Procedures Act, disregarding and misunderstanding the nature of her business and the information on her business income in the amended self-assessments and supporting documents.

68. The Appellant contested the Respondent’s application of banking analysis in assessing additional tax. The Respondent, on the other hand, stated that it was rendered with no alternative other than to resort to additional sources of information such as the Appellant’s bank records so as to ascertain the actual taxes due and payable by the Appellant considering that the Appellant filed nil returns for this obligation in the years 2017, 2018, 2019 and 2020.

69. The Respondent asserted that the Appellant only provided schedules purporting to show amounts received from clients, creditor funds and vendor payments. That since the Appellant did not provide sufficient documentation, she did not support the assertion that she was involved in brokerage and that the monies in the bank did not constitute sales, therefore the Respondent treated the unexplained deposits in the bank statements as taxable income and computed taxes.

70. The key issue in the present case is the question of documentation to substantiate the transactions in the Appellant’s bank accounts. The Appellant contended that she provided the Respondent with documentation and information on the nature of her business and business income in support of her case, which the Respondent allegedly disregarded and misunderstood.

71. Conversely, the Respondent argued that the objection decision was based on information available to the Respondent.

72. Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal (TAT) Act place the burden of disproving the Commissioner upon the taxpayer. To satisfy this burden, a taxpayer ought to submit all the relevant evidentiary material in its possession.

73. The Tribunal refers to the case of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) where the Court held at paragraph 26 that: -“From the above, it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner. I have emphasized and underlined ‘competence’ and ‘relevance’ because it is only evidence that meets these two tests that demolishes presumption of correctness and swings the burden to the Commissioner. This means that even if one avails evidence but then it is found that the same is incompetent or irrelevant, then the burden continues to remain with the taxpayer.”

74. The Tribunal made a similar observation in Tax Appeal Number 25 of 2021 Mugo Macharia Kigo v Commissioner of Investigations & Enforcement wherein it stated that a taxpayer with an assessment arrived at based on an indirect method where information is secured from alternative sources is enjoined to provide the necessary documents and information that suggest that such an assessment is erroneous, misplaced and not justified in the circumstances.

75. In the absence of relevant documentation to facilitate in the assessment of a tax liability, the Respondent is empowered under Sections 29(1) and 31(1) of Tax Procedures Act to use its best judgement in making its tax assessment.

76. The Appellant raised issue with the Respondent’s resort to analysis of her bank accounts in the assessment of tax. The Tribunal has held before that exercise of best judgement includes use of bank deposit analysis in TAT Appeal No. 115 of 2017 Digital Box Limited 2017 Vs Commissioner of Investigations & Enforcement where the Tribunal stated as follows: -“Further the courts have in the past held that the banking analysis test (also known as bank deposit analysis) is an acceptable method of arriving at an assessment. This was held to be so in the case of Bachmann v. The Queen, 2015 TCC 51 where the court stated that: -"This court has recognized that in an appropriate case a bank deposit appropriate case a bank deposit analysis is an acceptable method to compute income." Once it is established that the method is allowed, the question is whether the method was applied in arriving at a reasonable assessment in the case at hand. The Tribunal is guided by the test set out in CA McCourtie LON/92/191 where it was stated: - "In addition to the conclusions drawn by Woolf Jin Van Boeckel earlier tribunal decisions identified three further propositions of relevance in determining whether an assessment is reasonable. These are, first that the facts should be objectively gathered and intelligently interpreted; secondly. that any calculations should be arithmetically sound; and finally, that any sampling technique should be representative and free from bias.”

77. The Tribunal finds that the Appellant has not proven that the use of bank deposit analysis is against the law and that when the Respondent used it, the Respondent arrived at an unreasonable assessment which lacked objectivity or was arithmetically wrong or biased.

78. The Tribunal notes that the Appellant only presented to the Tribunal the financial statements for the years 2016 to 2020 for consideration in this Appeal. Although the Respondent stated that the Appellant had furnished it with schedules purporting to show amounts received from clients, creditor funds and vendor payments during its review of the Appellant’s objection, the Appellant did not provide these documents to the Tribunal for consideration. The Tribunal, therefore, considered the only documents that the Appellant furnished in the Appeal to establish if they were sufficient to persuade a reasonable person that the Respondent’s assessment of the Appellant’s tax liabilities was erroneous.

79. Section 54A(1) of the Income Tax Act which provides that: -“A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds, contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax.”envisions that a person carrying on a business must keep certain records and documents which in the opinion of the Commissioner are adequate for computing tax. The Appellant, however, did not produce these records and documents for the Tribunal’s review.

80. Section 23(1) of the Tax Procedures Act also provides that a taxpayer is required to keep records as follows: -“A person shall—(a)maintain any document required under a tax law, in either of the official languages;(b)maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; and(c)subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

81. The Tribunal’s review of the evidence presented by the Appellant in the Appeal revealed that the Appellant failed to adduce source documents including bank statements, bank reconciliations, brokerage agreements, commission statements, sales invoices, purchase invoices, freight documents, customs documents in case of importations of goods, her general ledgers, and other relevant records to support her allegations that her source of income was brokerage and earning commissions on local and imports market survey and facilitation, and that the cash deposits in her bank accounts were not income.

82. Additionally, the Tribunal finds that the Appellant failed to provide a plausible explanation for the discrepancies between the income she disclosed and the cash deposits in her bank accounts, inspite of the law expressly placing a burden on her as a taxpayer to prove her case.

83. The Appellant further admitted in an email to the Respondent dated 4th May 2022, that she relies on bank statements and auditor interviews and fair judgement in preparation of her financial statements due to the nature of her business and accounting and tax capacity related challenges, such as, incomplete records and absence of financial accounting internal control systems.

84. Due to the Appellant’s failure to provide critical transactional documents in support of her bank deposits, the Tribunal was unable to determine the accuracy and completeness of the financial statements provided by the Appellant as evidence.

85. The Appellant asserted that the Respondent erred in law and fact by imposing VAT since the nature of her business does not involve buying and selling, which was explained through documents supplied during the objection. Conversely, the Respondent averred that upon conducting conclusive investigations, it established that the Appellant had met the threshold to be registered for VAT under Section 5 of the Value Added Tax Act.

86. In its consideration of the Appellant’s assertion, the Tribunal considered the provisions of the VAT Act with regard to charge of VAT and VAT Registration.

87. Section 5(1) of the VAT Act states as thus: -“A tax, to be known as value added tax, shall be charged in accordance with the provisions of this Act on—(a)a taxable supply made by a registered person in Kenya;(b)the importation of taxable goods; and(c)a supply of imported taxable services.”

88. Section 34 of the VAT Act provides that: -“(1)A person who in the course of a business—(a)has made taxable supplies or expects to make taxable supplies, the value of which is five million shillings or more in any period of twelve months; or(b)is about to commence making taxable supplies the value of which is reasonably expected to exceed five million shillings in any period of twelve months,shall be liable for registration under this Act and shall, within thirty days of becoming so liable, apply to the Commissioner for registration in the prescribed form:Provided that a person supplying imported digital services over the internet, an electronic network or through a digital marketplace shall register whether or not the taxable supplies meet the turnover threshold of five million shillings.(2)In determining whether a person exceeds the registration threshold for a period, the value of the following taxable supplies shall be excluded—(a)a taxable supply of a capital asset of the person; and(b)a taxable supply made solely as a consequence of the person selling the whole or a part of the person’s business or permanently ceasing to carry on the person’s business.(3)...(4)...(5)The Commissioner shall issue a registered person with a tax registration certificate in the prescribed form.(6)If the Commissioner is satisfied that a person eligible to apply for registration has not done so within the time limit specified in subsection (1), the Commissioner shall register the person.(7)The registration of a person under subsection (1) or (6) shall take effect from the beginning of the first tax period after the person is required to apply for registration, or such later period as may be specified in the person’s tax registration certificate.”

89. From the above, the Tribunal notes that the Appellant’s nature of business, which the Appellant described in its email to the Respondent dated 4th May 2022 as brokerage and earning commissions on local and imports market survey and facilitation, is not expressly listed as an exempt supply under the First Schedule to the VAT Act. In addition, the Appellant failed to prove that its supplies were exempted from VAT. Based on the foregoing, the Tribunal finds that the Appellant made taxable supplies in the period of assessment.

90. Having determined that the Appellant made taxable supplies of a value of more than five million shillings in periods of twelve months throughout the period of assessment, the Tribunal finds that the Respondent was justified in registering the Appellant for VAT in the period of assessment as the Appellant was liable to register for VAT under Section 34 of the VAT Act.

91. Accordingly, the Tribunal finds that the Appellant did not discharge its burden of proof to demonstrate that the Respondent’s additional assessments of income tax and VAT for the periods 2016 to 2020 were incorrect or excessive as required under Section 56(1) of the TPA and Section 30 of the TAT Act.

92. Consequently, the Tribunal finds that the Respondent was justified in issuing the objection decision dated 17th August 2022.

Final Decision 93. The upshot of the foregoing analysis is that the Tribunal finds that the Appeal lacks merit and accordingly proceeds to make the following orders:-a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 17th August 2022 be and is hereby upheld.c.Each party to bear its own costs.

94. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF AUGUST, 2024. ERIC NYONGESA WAFULA - CHAIRMANGLORIA A. OGAGA - MEMBERJEPHTHAH NJAGI - MEMBEREUNICE N. NG’ANG’A - MEMBER