19 August 2026
Introduction
Tax disputes are an inevitable aspect of tax administration. Differences frequently arise between taxpayers and the Kenya Revenue Authority (KRA) regarding assessments, tax liabilities, penalties, interest, and the interpretation of tax laws.
One of the tax dispute resolution avenue provided for under the tax legislation is tax litigation before the Tax Appeals Tribunal and the courts. However, litigation is often expensive, time-consuming, and adversarial. To address these challenges, tax legislation and in line with the Constitution of Kenya has embraced Alternative Dispute Resolution (ADR) as a mechanism for resolving tax disputes efficiently and amicably.
The adoption of ADR in tax administration reflects the constitutional commitment to promoting alternative forms of dispute resolution and enhancing access to justice. Today, ADR has become an important component of Kenya’s tax dispute resolution framework, enabling taxpayers and KRA to settle disputes through dialogue and mutual agreement without the need for prolonged litigation.
What is Alternative Dispute Resolution (ADR)?
Generally, Alternative Dispute Resolution refers to mechanisms used to resolve disputes outside the traditional court process. ADR encompasses various methods such as mediation, negotiation, conciliation, and arbitration. In the tax context, ADR primarily involves facilitated negotiations between KRA and taxpayers with the assistance of a facilitator or mediator aimed at reaching a mutually acceptable settlement.
Unlike litigation, which produces a winner and a loser, ADR process is a win-win situation which seeks to foster cooperation and preserve relationships between disputing parties. The process encourages open communication, flexibility, and practical problem-solving. The objective is not merely to determine who is right or wrong but to arrive at a fair and lawful resolution that is acceptable to both parties.
Statutory Framework Governing ADR in Tax Disputes
The legal foundation for ADR in tax disputes is principally found in Section 55 of the Tax Procedures Act, 2015. The provision empowers the Commissioner and a taxpayer to resolve a tax dispute through an ADR mechanism before the matter is determined by the Tax Appeals Tribunal or the courts.
Section 55(1) provides that a taxpayer and the Commissioner may, at any stage of proceedings before the Tribunal, apply for settlement of the dispute through ADR. Once parties agree to pursue ADR, the proceedings before the Tribunal are generally suspended to allow negotiations to take place.
ADR in tax disputes is also supported by Section 28 of the Tax Appeals Tribunal Act, 2013, which empowers the Tribunal to facilitate settlement discussions and encourage alternative resolution of disputes.
Further support is derived from the Fair Administrative Action Act, 2015, which promotes efficient, expeditious, and cost-effective resolution of disputes involving public authorities.
How KRA Conducts the ADR Process
KRA has developed ADR Guidelines to facilitate the implementation of Section 55 of the Tax Procedures Act. The process may be initiated either by the taxpayer, KRA, or upon recommendation by the Tax Appeals Tribunal.
Once a request for ADR is made and accepted, the matter is referred to the ADR team within KRA. A facilitator is then appointed to guide discussions between the parties. The facilitator does not determine the dispute or impose a decision but assists the parties in identifying issues, clarifying facts, and exploring possible solutions.
The ADR process is conducted through structured meetings involving representatives of KRA and the taxpayer. During these meetings, parties exchange information, explain their positions, and identify areas of agreement and disagreement. The discussions are confidential and conducted on a without-prejudice basis, meaning that statements made during negotiations cannot ordinarily be used against either party if the matter proceeds to litigation.
If the parties reach an agreement, the settlement is reduced into writing and signed by both parties. The consent is then presented to the Tax Appeals Tribunal for adoption as an order of the Tribunal. Once adopted, the settlement becomes binding and enforceable.
Where ADR fails to produce an agreement and consent, the dispute returns to the Tribunal for determination through the ordinary litigation process. Importantly, parties do not lose their right to pursue the matter before the Tribunal merely because ADR was unsuccessful.
Disputes Amenable to ADR
Not every tax dispute is suitable for ADR. Generally, disputes involving questions of fact, or reconciliation matters are best resolved under the ADR.
However, disputes that are technical in nature and raise significant constitutional questions, issues of public policy, allegations of tax fraud, criminal tax offences, or matters requiring authoritative judicial interpretation of the law may not be suitable for ADR and are best resolved in the Tribunal or the Court process.
The suitability of a dispute for ADR therefore depends on whether the issues can be resolved through negotiation without undermining statutory obligations or public interest considerations.
.
Advantages of Resolving Tax Disputes through ADR
One of the greatest advantages of ADR is its efficiency. Litigation can take several years before a final determination is reached, particularly where appeals proceed through multiple levels of the judicial system. ADR significantly reduces the time required to resolve disputes, enabling parties to achieve certainty more quickly.
ADR is also cost-effective. Court proceedings often involve substantial legal fees, filing costs, expert witness expenses, and administrative burdens. By contrast, ADR minimizes these costs and reduces the financial strain associated with prolonged litigation.
Another important benefit is flexibility. Unlike court proceedings, ADR allows parties to tailor discussions to the specific circumstances of the dispute. This flexibility encourages practical solutions that may not be available through formal adjudication.
ADR further promotes voluntary compliance and preserves the relationship between taxpayers and KRA. Because the process is collaborative rather than adversarial, it helps build trust and encourages future cooperation in tax compliance matters.
Confidentiality is another significant advantage. Tax disputes frequently involve sensitive financial information. ADR proceedings are generally conducted privately, protecting the interests of taxpayers while allowing candid discussions between the parties.
Finally, ADR reduces the backlog of cases before the Tax Appeals Tribunal and the courts. By diverting suitable disputes away from litigation, ADR contributes to the efficient administration of justice and allows judicial resources to be allocated to disputes that genuinely require adjudication.
Conclusion
The incorporation of ADR into Kenya’s tax dispute resolution framework reflects a recognition that not all tax disputes require formal adjudication. By providing a structured forum for constructive engagement between taxpayers and KRA, ADR facilitates the timely resolution of disputes while supporting the broader objectives of fairness, efficiency, and voluntary tax compliance. Its continued use is expected to strengthen confidence in the tax system and contribute to more effective tax administration.