Why More Taxpayers are Opting for ADR in Resolving Tax Disputes

In a quiet revolution against the traditional practice of enforcement, taxmen globally are now showing serious interest in finding ways to solve business disputes without going to trial.

Kenya Revenue Authority (KRA) has not been left behind in this revolution and is indeed among the taxmen that have embraced Alternative Dispute Resolution (ADR) as a means of settling tax disputes.

This has resulted in KRA experiencing a 20% growth in ADR in the last financial year, a sign that trust and facilitation is now at the centre stage of dispute resolution in tax matters.

Majority of taxpayers facing disputes with KRA, are now adopting amicable ways of settling their disputes out of court and this is evidenced by the rising number of cases concluded by way of ADR; with 284 tax disputes concluded in the FY 2019/20 compared to 237 concluded in 2018/19.

The Authority has fully embraced ADR, offering facilitative approaches of solving disputes anchored on the fulcrum of trust for enhanced compliance. This new approach to solving disputes is more rewarding to the parties involved since there is a win-win situation.

In resolving disputes, KRA employs the facilitated mediation type of ADR where a neutral mediator assists the parties to reach an amicable solution or settlement.

All tax disputes qualify to be resolved through ADR apart from those arising from the interpretation of the Constitution and criminal cases of tax evasion.

KRA’s decision to introduce ADR in 2015 was informed by the need to address the burgeoning backlog of tax disputes that were pending at the Tax Appeals Tribunal (TAT) and at the courts.

It was found that traditional means of resolving disputes through litigation brought with them a fair share of challenges among them low compliance, high litigation costs and strained relations between KRA and the taxpayers.

Although ADR’s reception at the inception stages was quite low, the framework is fast gaining traction in the country. The growing number of applications over the past few years point to a future where ADR will be the most preferred avenue for settling tax disputes.

Apart from providing a platform for better relations between KRA and the taxpayers, ADR acts as a key revenue enhancement measure.

Since inception, ADR has seen KRA successfully emancipated revenue trapped in tax disputes at a faster rate. In the just-ended financial year, ADR realised revenue of KShs. 9.561 Billion compared to 2018/2019 where the revenue realised was KShs. 8.102 Billion. This represents 18 % growth in revenue.    

One might therefore ask, why opt for ADR? Unlike the litigation process, ADR has many advantages for both parties.

This explains the exponential uptake of the framework in the country within such a short span since its inception.

Time factor is one of the advantages of ADR. According to the Tax Procedures Act 2015, cases under ADR should be resolved within ninety days, which makes the framework time-saving. In most cases, a resolution is reached way earlier before the lapse of the ninety days.

Secondly, ADR is cost effective as there are no costs involved.

Thirdly, flexibility and control of the matter at hand by both parties is guaranteed. Unlike in a lawsuit, in ADR mediations, the parties are in full control of the process.

This means that the parties have a much greater say in negotiations and greater control over the outcome and can push the resolution within a shorter time.

Given that the resolution under the ADR framework is a win-win situation for the parties concerned, there is room for certainty of the outcome.

The win-win outcome is the reason why ADR is the best in building relationships between the taxman and the taxpayers. This results in improved compliance levels.

Fourthly, the ADR framework is less formal. The informality of mediation allows the parties to be more engaged than they would be in a court-driven process.

Accordingly, since the mediator deals directly with the parties, the mediator can focus the attention of the parties upon their needs and interests and hence resolve the cases faster.

Another aspect that makes ADR more favourable than litigation is confidentiality. The process involves fewer parties and no records or transcripts and any evidence introduced during mediation can be used later or revealed. This fast-tracks discussions and signing of agreements.

Going by the exponential growth in the number of tax dispute cases closed and the revenue yielded for the period ADR has been operational, there is no doubt that ADR is the way to go.  

The writer is the Commissioner for Legal Services and Board Coordination at KRA

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