If you’ve been keeping an eye on the news, you’ll know that the Kenya Revenue Authority (KRA) has been rolling out various strategies to catch tax evaders. The integration of technology with business activities is making it harder for tax cheats to stay hidden.
In today’s environment, your customers, suppliers, bankers, and even online transactions can provide data that exposes any failure to meet your tax obligations. Instead of trying to outsmart the KRA or wasting energy complaining about a tough tax regime—which is beyond your control—the best course of action is to ensure compliance, protecting your business both now and in the future.
Many traders might not realize that the cost of complying with tax regulations is far lower than the risks and penalties associated with non-compliance. And remember, ignorance is never a valid defense.
As a business owner, it’s essential to always do the right thing. Here are some tips to help you stay compliant and focus on what truly matters—growing your business:
1. Register for the Right Tax Obligations
Ensure that your business is registered for all applicable taxes, including VAT, PAYE, Corporate Tax, and any other relevant tax obligations specific to your industry. Use the iTax system to handle registration and manage these taxes efficiently.
2. Keep Accurate Financial Records
It’s crucial to maintain detailed records of all your financial transactions, such as sales, expenses, payroll, and other relevant documents. Proper bookkeeping aids in accurate tax filing and reduces the likelihood of errors or omissions.
The law requires taxpayers to keep records for at least five (5) years, enabling the Kenya Revenue Authority (KRA) to assess taxes for that period. However, in cases where fraud is detected, the law allows KRA to investigate as far back as necessary to prosecute offenders and recover the owed taxes.
Keeping good records and separating your business transactions from your personal transactions will also strengthen your position in the event of a tax dispute.
3. Stay Up to Date with Tax Laws
Kenya’s tax laws can change frequently, and these changes can impact how you manage your tax obligations. Keep yourself informed about any updates or changes in tax regulations to avoid non-compliance. Subscribe to newsletters, attend tax seminars, or follow credible sources to stay updated.
4. File Returns on Time
Avoid penalties by submitting your tax returns before the deadlines. Different taxes have varying filing frequencies—such as monthly for VAT and PAYE or annually for Corporate Tax—so set reminders or automate the process wherever possible.
5. Understand and Utilize Tax Incentives
Make sure you’re aware of the tax incentives and deductions available for SMEs in Kenya. For example, the government offers tax reliefs for specific expenses like donations, business investments, and asset depreciation. Ensure you’re taking full advantage of these opportunities.
6. Engage with a Tax Professional
Regularly consulting with a tax advisor or accountant is key to staying compliant with Kenyan tax laws. A tax professional can help you navigate complex regulations, ensure your business benefits from all available tax incentives, and optimize your tax strategy. They can also keep you informed of any changes in tax laws that might affect your business.
Additionally, KRA’s public education department can be a valuable resource if you need help understanding any tax-related issues.
Self-Assessment Regime
Kenya’s tax system is based on self-assessment, where the taxpayer calculates and remits their own taxes to the KRA. However, when disputes arise, the taxpayer must provide evidence to support their self-assessed taxes. The burden may shift only when the KRA issues additional tax assessments, which must include the sources, laws, and reasons for the assessments.
Unfortunately, some individuals or businesses abuse the trust inherent in the self-assessment system by underreporting or failing to declare their income, thus evading tax payments.
Additional Assessment
When the KRA suspects that you have under-declared your taxes, they may issue additional tax assessments. Before making any tax demands or issuing an assessment, the KRA engages in a thorough review process, requesting documents, records, and other information from the taxpayer to verify the self-assessment.
If discrepancies leading to tax liability are found, the taxpayer is informed both orally and in writing and given a chance to respond to the issues before any assessments or demands are issued. If fraud is detected, the law allows the KRA to investigate as far back as necessary to prosecute offenders and recover the taxes owed.
The taxpayer is then informed of their right to object to the demand or assessment and can choose to either pay the taxes or file an objection, potentially appealing the case to the Tax Appeals Tribunal.
Navigating the complexities of tax compliance in Kenya requires vigilance and a proactive approach. By staying informed, maintaining accurate records, and engaging with tax professionals, your business can avoid the pitfalls of non-compliance and focus on sustainable growth. Remember, compliance not only protects your business from penalties but also enhances its credibility and reputation in the marketplace. Stay ahead, and let compliance be your competitive edge.