A Tribunal has ruled that the Kenya Revenue Authority’s use of Debit Adjustment Vouchers (DAVs) to recover taxes is unlawful.
The Tribunal ruling was issued in the case involving Browns East Africa Plantations PLC and the Commissioner of Domestic Taxes regarding the use of DAVs.
According to the Tribunal, the Browns East Africa Plantations PLC lodged a formal objection against tax deductions made from the Company under Section 51 of theof the Tax Procedures Act.
Browns East Africa Plantations PLC Company reports showed that the company had substantial valid VAT input credits in its iTax account and had undergone the VAT assessment.
However, before any Objection Decision was issued, KRA’s iTax system automatically generated and applied DAVs on the company.
KRA DAV vouchers resulted in credits totaling over KSh 103 million for the Browns East Africa Plantations PLC.
Effective deductions were made before an objection was issued, which the Company argued was an unlawful and premature collection by the KRA.
“The Tribunal found that DAVs automatically generated on iTax and used to reduce a taxpayer’s valid VAT credits constitute premature recovery of disputed taxes when issued before KRA renders an Objection Decision and before a taxpayer can exercise their right of appeal,” the Tax Appeals Tribunal ruling stated.
During the case, KRA claimed that the Debit Adjustment Vouchers were merely administrative entries, but the Tribunal dismissed the argument.
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According to the Tribunal, under the Statutory Protections, the Tax Procedures Act prohibits the KRA from enforcing or recovering disputed tax until an Objection Decision is issued.
Furthermore, there was no provision in the TPA or the VAT Act, 2013, that authorized the use of DAVs or any iTax-generated mechanism to bypass the statutory stay.
The Tribunal emphasized that the KRA’s technical system configurations must align its iTax platform with the TPA’s requirements.
KRA was ordered to reinstate the debited credits to the Browns East Africa Plantations PLC within 60 days.
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Why KRA Cannot Enforce Tax Recovery Through Debit Adjustment Vouchers (DAVs)
Debit Adjustment Vouchers are automated entries generated by KRA’s iTax portal that reduce the available taxpayer’s VAT credits or refunds to offset additional assessments.
DAVs mostly arise from VAT Automated Assessments (VAA) or invoice mismatches under the Tax Invoice Management System (eTIMS).
Unlike manual recovery tools such as agency notices, DAVs instantly deplete valid input tax credits without separately notifying or obtaining taxpayer consent.
According to the KRA, the voucher is a system-generated bookkeeping adjustment with no independent legal force.
However, the Tribunal Ruling stated that KRA lacks the authority to use DAVs for recovery while an objection is active.
In addition, the tax recovery enforcement is permitted only after liability has lawfully been ordered, and the automated features lack compliance with statutory timelines and objection stays.
