19 August 2026
Introduction
As the Kenya Revenue Authority (KRA) continues to enhance tax compliance measures through audits, data analytics, and increased enforcement, tax disputes have become an increasingly common aspect of doing business in Kenya. While taxpayers often focus on meeting their tax obligations, many disputes are ultimately determined not by complex legal arguments but by the availability and quality of supporting documentation. Under Kenya’s tax framework, the burden of proving that a tax assessment or decision is incorrect rests primarily on the taxpayer. Consequently, proper record keeping is not merely a statutory obligation; it is a critical safeguard that can determine the outcome of a tax dispute.
The Legal Framework on Burden of Proof
The burden of proof in Kenyan tax disputes is principally governed by Section 56(1) of the Tax Procedures Act, 2015, which provides that in any proceedings under a tax law, the burden shall be on the taxpayer to prove that a tax decision is incorrect. Similarly, Section 30 of the Tax Appeals Tribunal Act, 2013 places the burden on the appellant to demonstrate that a tax assessment or decision is excessive, incorrect, or should not have been made.
These provisions establish a unique position in tax litigation. Unlike ordinary civil proceedings where the party making an allegation bears the burden of proof, tax disputes begin with a presumption that KRA’s assessment or decision is correct. The taxpayer must therefore provide sufficient evidence to rebut that presumption.
Kenyan courts have consistently upheld this principle. In Timsales Limited v Commissioner of Domestic Taxes [2018] eKLR, the High Court emphasized that a taxpayer challenging an assessment must produce credible evidence demonstrating why the assessment is incorrect. Mere assertions or explanations unsupported by documentary evidence are insufficient to discharge the statutory burden.
The Statutory Duty to Keep Records
The burden of proof is closely linked to the statutory obligation to maintain records. Section 23 of the Tax Procedures Act requires every taxpayer to maintain documents and records sufficient to enable the determination of tax liability for a period of at least five years after the end of the relevant reporting period.
These records include invoices, receipts, contracts, accounting books, bank statements, customs documentation, payroll records, electronic records, and any other documents relevant to the taxpayer’s affairs. Failure to maintain adequate records can expose a taxpayer to penalties and significantly weaken their position during audits and appeals.
The rationale behind this requirement is straightforward. Taxpayers are best placed to maintain evidence relating to their transactions and business activities. Where records are unavailable or incomplete, KRA may rely on alternative methods to assess tax liability, leaving the taxpayer with the difficult task of disproving the assessment without supporting evidence.
Lessons from the Hapag-Lloyd Decision
The recent decision in Hapag-Lloyd (Kenya) Limited v Commissioner of Domestic Taxes (Tax Appeal E114 of 2025) [2025] KETAT 256 (KLR) serves as a timely reminder of the importance of procedural compliance and documentary evidence in tax disputes.
The dispute arose from KRA’s rejection of a VAT refund claim by the taxpayer. Before delving into the substantive merits of the claim, the Tax Appeals Tribunal examined whether the appeal had been properly instituted and whether the statutory requirements governing appeals had been satisfied. The Tribunal ultimately struck out the appeal on procedural and jurisdictional grounds.
Although the case primarily concerned procedural compliance, it underscores a broader principle in tax litigation: taxpayers must strictly comply with statutory requirements and be prepared to support every claim with adequate evidence and documentation. The decision illustrates that even where a taxpayer may have substantive arguments, failure to meet procedural and evidentiary requirements can prove fatal to a claim.
Why Records Matter in Tax Disputes
Tax disputes are fundamentally evidence-driven. Whether the dispute concerns income tax, VAT, withholding tax, customs duties, or transfer pricing adjustments, the taxpayer’s success often depends on the quality and completeness of their records.
In disputes involving deductible expenses, Section 15 of the Income Tax Act permits deductions only where expenditure is wholly and exclusively incurred in the production of income. Taxpayers must therefore maintain invoices, payment vouchers, contracts, and supporting documentation demonstrating the business purpose of the expenditure.
In Republic v Commissioner of Domestic Taxes ex parte Barclays Bank of Kenya Limited [2012] eKLR, the court observed that entitlement to tax deductions must be supported by sufficient evidence. Unsupported claims cannot be sustained merely on the basis of assertions by the taxpayer.
Similarly, in Commissioner of Domestic Taxes v Kenya Commercial Bank Limited [2021] eKLR, the court reiterated that taxpayers bear the responsibility of maintaining records capable of substantiating their tax positions and demonstrating the correctness of deductions and exemptions claimed.
The Importance of Documentation in VAT Claims
The significance of proper records is particularly evident in VAT disputes. Section 17 of the Value Added Tax Act, 2013 allows taxpayers to claim input VAT only where they possess valid tax invoices and supporting documentation.
The Tax Appeals Tribunal has consistently held that a taxpayer seeking to recover input VAT or obtain a refund must provide documentary evidence demonstrating that the transaction occurred and that the VAT claimed was properly incurred. Where invoices are missing, incomplete, or fail to comply with statutory requirements, taxpayers often find it difficult to discharge the burden imposed by Section 56 of the Tax Procedures Act.
As a result, maintaining proper invoicing systems and preserving supporting records is essential for any business seeking to protect its VAT position.
Record Keeping and Transfer Pricing Compliance
For multinational enterprises, record keeping assumes even greater significance in transfer pricing disputes. The Income Tax (Transfer Pricing) Rules, 2006 require taxpayers engaged in transactions with related parties to maintain contemporaneous documentation demonstrating that such transactions comply with the arm’s length principle.
Where transfer pricing documentation is unavailable or inadequate, KRA may make adjustments based on available information. In such circumstances, the taxpayer bears the burden of proving that the adjustments are incorrect. Without proper documentation, meeting this burden becomes exceedingly difficult.
Are There Exceptions to the Burden of Proof?
Although taxpayers generally bear the burden of proof, there are circumstances in which KRA must establish certain facts. For example, where KRA alleges fraud, wilful neglect, or misrepresentation in order to issue assessments outside the ordinary statutory limitation period under Section 31 of the Tax Procedures Act, the authority must provide evidence supporting those allegations.
Kenyan courts have repeatedly held that fraud cannot be presumed and must be specifically proved. This ensures that taxpayers are protected from unsupported allegations that could otherwise justify extended assessments and additional liabilities.
Conclusion
The combined effect of Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act is clear: taxpayers carry the primary responsibility of proving that KRA’s decisions are wrong. This statutory burden makes proper record keeping one of the most important aspects of tax compliance and dispute management.
The decision in Hapag-Lloyd (Kenya) Limited v Commissioner of Domestic Taxes reinforces the importance of strict adherence to procedural requirements and the need for taxpayers to maintain comprehensive supporting documentation. Whether a dispute concerns deductible expenses, VAT refunds, transfer pricing adjustments, or any other tax issue, documentary evidence remains the taxpayer’s strongest weapon.
In the end, tax disputes are rarely won through recollection or verbal explanations. They are won through records. Businesses that invest in robust record-keeping systems, maintain accurate documentation, and preserve evidence of their transactions place themselves in the strongest possible position to withstand audits and successfully challenge adverse tax decisions. In Kenya’s evolving tax landscape, proper record keeping is not simply a legal requirement—it is the taxpayer’s best defence.