The Alternative Dispute Resolution (ADR) Framework for Tax Dispute Resolution in Kenya

Abstract

Since the promulgation of the Constitution of Kenya, 2010 incorporating Article 159 which enjoins the Courts to promote use of Alternative Dispute Resolution (ADR), the application of ADR in resolving disputes in Kenya has gone from general usage as a voluntary private arrangement of parties to incorporate use in resolving specialized disputes as part of administrative and quasi-judicial arrangement by public institution. The best example of the incorporation of ADR as a mechanism of resolving disputes in the administrative structure of a public entity is Kenya Revenue Authority (KRA). In June 2015, KRA developed its pioneering Alternative Dispute Resolution (ADR) Framework to guide stakeholders on using ADR in tax dispute resolution in Kenya. In June 2020, the National Treasury enacted the Tax Procedures (Settlement of Disputes Out of Court or Tribunal) Regulations, 2020 to buttress the KRA ADR Framework and guide the use of ADR in the settlement of tax disputes out of the Courts or Tax Appeals Tribunal.

The phrase alternative dispute resolution refers to all dispute resolution mechanisms and processes other than litigation including but not limited to negotiation, enquiry, mediation, conciliation, expert determination, arbitration and others. It has, however, been argued that the term “alternative dispute resolution” is a misnomer as it may be understood to imply that these mechanisms are second-best to litigation which is not true. Article 33 of the Charter of the United Nations outlines these conflict management mechanisms and is considered the legal basis for the application of alternative dispute resolution mechanisms in disputes between parties whether States or individuals. It provides that the parties to any dispute shall, first of all seek a solution by negotiation, enquiry, mediation, conciliation, arbitration, judicial settlement, resort to regional agencies or arrangements, or other peaceful means of their own choice.

This article discusses the legal framework for use of ADR in tax dispute resolution in Kenya with South Africa as a case study. It starts with a review of the constitutional basis for use of ADR in tax disputes in Kenya and the relevant provisions of the Civil Procedure Code relevant to use of ADR in resolving commercial disputes (including tax disputes) out of Court. The next section explores the methods of resolving tax disputes in Kenya as outlined by the Tax Procedures Act, 2015, the Tax Appeals Tribunal Act, 2013, the Tax Procedures (Settlement of Disputes Out of Court or Tribunal) Regulations, 2020 and the Revised KRA Alternative Dispute Resolution (ADR) Framework. This is followed by a review of the legal framework for Alternative Dispute Resolution of Tax Disputes to serve as a case study for the critique of the Kenyan Tax ADR framework. Finally, the author undertakes a critique of the framework for ADR of tax disputes in Kenya incorporating assessment of the successes, challenges and limitation.