Executive summary

The High Court of Kenya (Court), in Commissioner of Investigations and Enforcement v London Distillers (K) Limited (Income Tax Appeal E096 of 2022) (14 May 2026), overturned the underlying Tax Appeals Tribunal's (Tribunal) decision and upheld the Commissioner of Investigations and Enforcement's (Commissioner) objection decision assessing additional corporation tax, value-added tax (VAT) and excise duty against the taxpayer. The dispute arose from alleged undeclared production volumes and understated turnover identified through excise stamp reconciliations, banking analysis and input-output analysis of bottles. (Note: The full text of the decision only recently became available.)

The Court held that the Tribunal erred by finding that the taxpayer had adequately explained variances identified by the Commissioner and by shifting the burden of proof to the tax authority. The Court reaffirmed that under section 30 of the Tax Appeals Tribunal Act and section 56 of the Tax Procedures Act, the burden remains on the taxpayer to prove that an assessment is excessive or that a tax decision is incorrect.

The judgment also affirms that taxpayers are generally restricted to arguing the grounds raised in their objection and that tribunals should not determine issues that fall outside those grounds.

Facts

London Distillers (K) Limited, a Kenyan manufacturer of spirits and other alcoholic beverages, was subjected to a tax investigation by the Commissioner for 2015 to 2019. The investigation focused on production volumes, excise stamps, bottle purchases and banking transactions, with the Commissioner seeking to verify whether the taxpayer had accurately declared its turnover and excisable production.

Following the investigation, the Commissioner issued preliminary findings alleging significant variances between production volumes, excise stamp activations, declared sales and bank deposits. The Commissioner relied on three principal analyses: (1) reconciliation of excise stamp activations against declared production and sales, (2) an input-output analysis of bottles purchased to estimate production volumes, and (3) a review of the taxpayer's banking records to assess whether declared turnover corresponded with amounts received through its bank accounts.

Based on these analyses, the Commissioner concluded that the taxpayer had under-declared production and turnover and initially proposed additional tax liabilities of 2,681,871,986 Kenyan shillings (KES). After considering the taxpayer's explanations and supporting documents, the Commissioner issued an assessment for KES 2,055,304,414 comprising corporation tax, VAT and excise duty. The taxpayer objected to the assessment, arguing, among other things, that the bottle analysis was flawed, certain bottle purchases had been misclassified, not all bank deposits represented sales income and the Commissioner's reconciliations were erroneous. The Commissioner subsequently issued an objection decision increasing the assessment to KES 3,022,728,615.

The taxpayer appealed to the Tribunal (Tax Appeal No. 408 of 2021), which substantially allowed the appeal and set aside the assessments. The Tribunal found, among other things, that the Commissioner had not sufficiently verified the bottle analysis and had failed to establish the reliability of the production variances relied upon. The Commissioner appealed to the High Court.

High Court's judgment

Issue 1: Whether the Tribunal erred in setting aside assessments based on production variances and bottle analysis

The Court found that the Commissioner had considered the taxpayer's explanations and supporting documents during the objection process and had identified evidentiary gaps in the explanations provided. The Court held that it was the taxpayer's responsibility to prove the assessments were excessive or incorrect.

The Court rejected the Tribunal's finding that the taxpayer had satisfactorily explained bottle purchases and wastage and held that the Tribunal improperly substituted its own considerations for the issues raised in the objection process.

Issue 2: Whether the Tribunal correctly applied the burden of proof

The Court reaffirmed that section 30 of the Tax Appeals Tribunal Act and section 56 of the Tax Procedures Act place the burden on taxpayers to demonstrate that an assessment is excessive or a tax decision is incorrect. The Court further noted that the evidential burden only shifts when the taxpayer has provided all relevant documentation required in support of an objection.

Because the taxpayer had not provided all relevant supporting documentation, the Court held that the burden of proof did not shift to the Commissioner.

Issue 3: Whether the Tribunal could determine issues outside the objection grounds

The Court held that the Tribunal erred by making findings on matters such as production records, flow meter readings, accounting-system data and the role of the resident officer because the taxpayer had not raised those issues as grounds of objection. Under section 56(3) of the Tax Procedures Act, taxpayers are generally confined to the grounds stated in their objection unless additional grounds are specifically allowed.

Issue 4: Whether the assessment was based on tax evasion or fraud

The Tribunal had found that the assessment was premised on tax evasion and therefore required a higher level of proof from the Commissioner. The High Court disagreed, finding that fraud and tax evasion had not been pleaded and that the assessment was based on unexplained production and turnover variances identified during the investigation. The Court held that the taxpayer remained responsible for disproving the assessment.

Implications

The decision reinforces the statutory burden of proof in Kenyan tax disputes. Taxpayers challenging an assessment must produce sufficient documentary evidence showing that the assessment is excessive or that the tax decision is incorrect; unsupported explanations will not suffice.

Further, the decision underscores the importance of a taxpayer's submitting all relevant supporting documents at the objection stage. Failure to do so could leave the burden of proof on the taxpayer.

The decision highlights the need to frame objection grounds clearly and comprehensively, because issues not raised at the objection stage may be excluded from consideration on appeal.