NAIROBI, Kenya — The Tax Appeals Tribunal has overturned a Sh15.76 million VAT assessment issued by the Kenya Revenue Authority (KRA) against an events company, ruling that the tax agency cannot deny input VAT deductions solely because a supplier has been flagged as a “missing trader.”
The decision, involving Chairmania Events Ltd, provides an important clarification on the burden of proof in tax disputes and the circumstances under which KRA can reject input VAT claims based on information obtained about a taxpayer’s suppliers.
Chairmania had appealed after KRA disallowed input VAT claimed on equipment it said it hired from Terrex Traders Limited.
The equipment included tents, projectors, sound systems, chairs, dais and video systems used by the events company to serve its clients.
KRA questioned supplier transactions
KRA rejected the input VAT claims after classifying Terrex as a “missing trader”—a supplier whose transactions the authority could not adequately verify.
The tax agency argued that the classification raised doubts about whether the invoices and electronic tax receipts submitted by Chairmania represented genuine transactions that qualified for VAT deductions.
KRA further submitted that Chairmania’s bank statements did not show payments to Terrex and that the company had failed to provide sufficient supporting documents, including supplier statements and delivery notes.
Chairmania disputed the assessment, telling the Tribunal that it had provided tax invoices, electronic tax receipts, proof of payment, supplier ledgers and payment vouchers.
The company also maintained that its bank records demonstrated that payments had been made.
Tribunal shifts burden to KRA
In its ruling, the Tribunal said the burden of proof in tax disputes initially rests with the taxpayer but can shift to KRA once the taxpayer provides evidence supporting its position.
“It is settled law that the burden of proof in tax cases is not stationary; it swings like a pendulum between the taxpayer and the taxman,” the four-member Tribunal ruled.
The Tribunal said the taxpayer initially bears the burden of proving its claim, with KRA’s assessment presumed correct.
However, once the taxpayer produces evidence supporting the transactions, the burden shifts to the tax authority to disprove that evidence.
The Tribunal therefore found that KRA had not done enough to establish that the underlying transactions were not genuine.
Missing trader designation not enough
The ruling does not prevent KRA from using information obtained from third parties when auditing taxpayers.
However, the Tribunal said a supplier’s “missing trader” status cannot, by itself, be used to automatically disallow a taxpayer’s input VAT claim.
According to the Tribunal, KRA must independently investigate or corroborate the information before relying on it to reject a taxpayer’s claim.
The Tribunal noted that KRA had acknowledged that Chairmania satisfied the preliminary statutory requirements for claiming input VAT.
The company was VAT registered, made taxable supplies, charged VAT and claimed the input tax within the prescribed period.
The dispute therefore turned on whether KRA had sufficiently demonstrated that the specific purchases were not genuine.
Tribunal emphasises statutory requirements
Under the VAT Act, input VAT may generally be deducted where it relates to a taxable supply and the statutory conditions have been met.
The taxpayer must, among other requirements, be registered for VAT, make taxable supplies, claim the deduction within the prescribed period and possess the required documentation.
The Tribunal cautioned against extending tax liabilities beyond what is provided for under legislation.
“If the taxpayer has complied with the applicable law, then the information obtained from third parties should not be used to forcefully bring them within the tax dragnet,” the Tribunal stated.
It added that taxpayers should be taxed based on the applicable statutory provisions rather than assumptions arising from third-party information.
