GBR Team 18/05/2020
Kenya’s Taxman will introduce an amnesty programme for income tax, VAT and Excise Duty once the Finance Bill 2020 is passed into law. It is aimed at bringing into the fold thousands of taxpayers KRA is unable to audit yearly, into compliance. Expected beneficiaries include people who filed returns but did not pay taxes, those who have neither filed nor paid due taxes, those who have not applied for their PIN numbers as well as those not registered with iTax.
The Voluntary Tax Disclosure Programme, if approved, will require amendments to the Tax Procedures Act, and will come into effect on January 1st, 2021.
KRA has been battling corporate and individual taxpayers in the Commercial Courts with cases reported almost daily of yet another legal tussle with a taxpayer. It is currently locked in court battles with industrialists Humphrey Kariuki of African Spirits and Tabitha Kariuki, the CEO of Keroche Breweries from whom it is demanding billions. Current cases in court number more than 100.
David Yego, the KRA Commissioner in charge of Tax Investigations and Enforcement said in the first three months of this financial year, the country had lost more than Sh53billion in tax evasion.
““We have currently forwarded 118 cases to court from which we have lost we have so far lost Sh53 billion,” said Yego in October last year.
In addition, KRA was forced to invoke Departure Prohibition Orders against 26 people barring them from travelling out of the country after it accused them of being in tax arrears amounting to Sh9.2billion. The authority is granted powers to impose travel bans in such cases under the Tax Procedures Act.
Big 4 Audit firm, KPMG Kenya, reckons the proposed amnesty programme may help raise owed taxes without punitive enforcement measures.
In a tax alert on the same Bill, KPMG notes that:
“The introduction of a penalty and interest waiver programme will help both the taxpayer and the KRA to collect outstanding tax arrears. Based on its current capacity, the KRA is not able to carry out audits on all taxpayers and the program will help to bridge this
According to Anjarwalla and Khana (ALN Kenya), a leading law firm in the country, taxpayers who volunteer for the proposed programme, taxpayers will be allowed to disclose their tax liabilities to the KRA for purposes of being granted relief of penalties and interest on disclosed tax as well as immunity from prosecution.
“The programme will apply to tax liabilities that accrued within 5 years prior to 1 July 2020 meaning it will cover the period from June 2015,” firm partners, Daniel Ngumy and Kenneth Njuguna write in a legal alert.
Taxpayers will fill out a prescribed form and submit it to KRA disclosing “all material facts.” They will then have one year to pay the arrears.
“Interestingly, the taxpayer that is granted the relief cannot seek any other remedy e.g. right to appeal in regard to the taxes, penalties and interest remitted to the Commissioner,” ALN Kenya further notes.
“Failure to disclose a material fact may result to withdrawal of
the relief granted, assessment and collection of any balance of tax liability and prosecution.”
Taxpayers who are under audit or have received notification of a proposed audit will not be eligible for the programme.
Reached for comment, KRA declined to comment on the amnesty programme until the Finance Bill is passed into law by parliament.
However, KRA may be forced to make public presentations owing to constitutional requirements.
“It is expected that parliament will request stakeholders and public comments before the Bill becomes an Act,” Big 4 audit firm, Ernst and Young says in a tax alert on its website.
It however notes, “While the proposal provides that the taxpayer cannot appeal against the relief granted, a taxpayer may appeal against the Commissioner’s decision to withdraw it.”
KPMG reckons the Voluntary Tax Disclosure programme could be patterned after a similar Tax Administration (Remission of Interest and Penalty) Order of 2018 in Tanzania which was “fairly successful.”
Deloitte delved into the nuances of that programme here.