Disputes are an inevitable feature of tax administration. Whether arising from assessments, audits, penalties, or procedural compliance, disagreements between taxpayers and the state are a natural consequence of tax systems. Traditionally, these disputes have been resolved through litigation, a process that is often adversarial, slow, costly, and uncertain for both parties.
However, Alternative Dispute Resolution (ADR) has emerged as a critical pillar in contemporary tax administration across many jurisdictions, reflecting a broader shift away from a winner-take-it-all enforcement approach in how governments resolve disputes with citizens and businesses.
In Kenya, the constitutional foundation for ADR lies in Article 159 of the Constitution, which obliges courts and tribunals to promote alternative forms of dispute resolution, including mediation and reconciliation. This principle mirrors global best practice, where ADR is increasingly embedded in tax, customs, public procurement, and regulatory enforcement systems. Its purpose is not to weaken enforcement, but to strengthen governance outcomes by resolving disputes more quickly, predictably, and cooperatively through a structured yet flexible alternative to litigation.
ADR offers a complementary pathway. Rather than replacing statutory objections or appeals, it operates alongside them, providing a structured forum for negotiated settlement within the law. International institutions such as the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) consistently emphasise that effective dispute resolution is a core pillar of tax system integrity, voluntary compliance, and revenue certainty.
Across jurisdictions including South Africa, Australia, the United Kingdom, and Canada, revenue authorities retain in-house dispute resolution mechanisms that are institutionally separated from audit and enforcement functions. This separation safeguards objectivity while leveraging technical expertise that courts may lack.
In Kenya’s tax context, ADR is conducted as a facilitated mediation process, governed by detailed regulations that emphasise neutrality, confidentiality, full disclosure, and procedural discipline. Independent facilitators guide negotiations but do not impose outcomes, ensuring that settlements are evidence-based and lawful. Oversight by tribunals and courts provides an additional layer of accountability, while statutory timelines prevent undue delay.
Empirical evidence of ADR’s effectiveness
Empirical evidence demonstrates the steady maturation of ADR as a tax dispute resolution mechanism. Introduced on a pilot basis in FY 2015/2016, ADR recorded strong early resolution rates of 43.8 percent, signalling institutional commitment and operational viability. Over subsequent years, case volumes grew steadily from 550 to 721 between 2018 and 2020 with the number of resolved cases rising from 237 to 284, reflecting rising taxpayer confidence and acceptance of ADR as a credible alternative to litigation.
A significant inflection point occurred during the COVID-19 period, when ADR proved resilient despite systemic disruption, with both case intake and resolution volumes increasing and resolution rates improving to over 50 per cent. In the post-pandemic period, ADR scaled rapidly, handling its highest caseloads while maintaining consistent performance. From FY 2023/2024 onwards, efficiency gains became evident, with resolution rates exceeding 55 per cent and peaking above 62 per cent in FY 2024/2025. These trends point to improved case screening, procedural refinement, and greater preparedness by both taxpayers and KRA.
The Benefits of ADR
One of ADR’s most significant contributions lies in its impact on governance. By shifting disputes away from rigid, winner-takes-all litigation, ADR fosters a non-adversarial culture based on transparency, good faith, and mutual accountability. This improves the relationship between the state and taxpayers, reinforcing perceptions of procedural fairness—an essential determinant of voluntary compliance.
ADR also relieves pressure on courts and tribunals, allowing judicial resources to focus on matters that genuinely require authoritative interpretation of law or constitutional determination. In this sense, ADR supports the broader administration of justice, not just revenue outcomes.
Legal Safeguards and Integrity of the Process
A common misconception is that ADR operates informally or without oversight. In reality, effective ADR frameworks are governed by statute, regulations, and institutional controls. Participation is voluntary, rights of appeal are preserved, and either party may withdraw without prejudice if settlement proves impossible. The settlement of Tax Disputes Regulations prescribe procedural discipline: facilitators must convene the first meeting within 14 days of nomination; parties must communicate transparently and only in each other’s presence; and both sides must uphold integrity, decorum, and full disclosure of material facts. Non-attendance without just cause may result in rescheduling or termination of the process. Where technical expertise is required, parties may—with mutual consent—invite experts to provide testimony, further enhancing transparency and informed decision-making.
Importantly, not all disputes are suitable for ADR. Matters involving fraud, constitutional interpretation, or points of law of general application are typically excluded. These boundaries protect the integrity of the system and prevent misuse of mediation as a tool for avoiding legal obligations.
Addressing Concerns on Revenue Risk
Critics sometimes argue that ADR exposes governments to revenue leakage. This concern often arises from a misunderstanding of how assessments are generated. In many cases, disputes involve estimated or default assessments issued in the absence of complete information. However, ADR provides a structured opportunity for taxpayers to present records and audited accounts, enabling reassessment based on actual data. What may appear as a reduction in assessed tax is, in fact, a correction that enhances accuracy and legitimacy.
Conclusion
ADR’s advantages over litigation are clear as it is a more informal, flexible, accessible, cost-effective, and time-efficient. Properly understood and utilised, it is a constitutionally grounded, efficient, and credible mechanism that benefits both taxpayers and the revenue administrators – an approach aptly captured by the maxim that “An ounce of mediation is worth a pound of arbitration and a ton of litigation.”
Fidel Marabu Limo is the Founding Partner at Limo and Njoroge Advocates
