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Tax Procedures Act

The Act provides The Procedural Rules For Tax Administration In Kenya. It Is Intended To Provide consistency & Efficiency And Facilitate Easy Compliance By Taxpayers.

The Commissioner General The Ability Of Controlling, Collecting, Accounting For And General Administration Of Taxes. He May Appoint Officials To Assist In Tax Administration And Any Of The Commissioner’s Powers May Be Delegated In Writing To Any Officers. (Section 4)

Any Information Obtained During Tax Administration Should Remain Confidential. They Can Only Be Disclosed To Other Tax Officers, Authorized Customs Officers, A Tribunal Or Court, The Kenya National Bureau Of Statistics, The Auditor General, A Government Department, A Foreign Government Or International Organization Subject To An Information Exchange Agreement, The EACC Or Any Other Person If Consent Is Given. (Section 6)

 

Persons (including companies) liable to tax should register with the Commissioner within 30 days of becoming liable, failure to which the Commissioner may register the person on his own motion.

Registered persons shall be issued a PIN under Section 11 which must be indicated in all tax returns, notices and any documents required under any tax law. The Commissioner can cancel a PIN when required and issue a new one.

Persons who cease to meet the registration requirements must apply for deregistration within 30 days and the Commissioner shall issue a notice to that effect failure to which, deregistration is deemed after 6 months of application.

Any one may be appointed as a tax representative of another person in the case of (Section 15A):

· Persons with legal disability (e.g. children, mentally challenged persons etc.) – if one is a guardian/legal representative.

· Companies - CEO, MD, Company Secretary, Treasurer or otherwise the accounting officer.

· Association of persons – Person responsible for accounting.

· Partnership - A partner or manager responsible for accounting.

· Trust –A trustee.

· Government –An accounting officer

· Foreign govt/International organisation - Person in charge of accounts in Kenya.

· Non-resident person - if he/she controls the person’s affairs in Kenya.

· Any other person – A tax agent or an agent appointed by the Commissioner.

A Representative is obligated to perform any duty imposed on a taxpayer by a tax law – including submission of tax returns. He/She may be personally liable for the taxes if money/property received on behalf of the taxpayer is disposed while the tax remains unpaid.

A representative shall:

 

· Not dispose of taxpayers assets without approval by the Commissioner

 

· Set aside any tax amounts required by the Commissioner

· Be personally liable for tax payable by the tax payer for amounts set aside

An individual or partnership may apply to the Commissioner to be licensed as a tax agent on the recommendation of the Tax Agents Committee and on payment of necessary fees.

Any agent must be a fit and proper person to file returns, notices of objection or otherwise transact business with the Commissioner under a tax law.

Persons (except lawyers) who receive payment to represent a taxpayer as his agent or to assist a taxpayer in his rights/obligations under a tax law must be a licensed tax agent.

An agent’s licence may be cancelled either on application or by the Commissioner where he/she prepares false returns, fails to meet the conditions for licensing under this Act or stops trading as a tax agent.

Taxpayers are required to retain all records required under a tax law for five years after the end of a reporting period.

The records must be in KSH and prepared in English or Swahili.

The retention period for tax records is no longer than five years from the end of the reporting period the tax record relates. However, the period may be extended where filed returns are amended by the taxpayer or Commissioner; or where there are proceedings that commenced before the end of the 5 year period.

An application may be made in writing to the commissioner for an extension of time required to submit the tax return. It shall be done before the due date for the submission. The extension however shall not alter the original due date for the next and subsequent tax returns.

The commissioner may at any time require a taxpayer to submit tax returns before the due date in case:

· Bankruptcy/winding-up/liquidation commences against a taxpayer.

· Commissioner reasonably believes taxpayer is about to leave Kenya permanently

· Taxpayer has or is about to cease carrying on business in Kenya.

· Taxpayer has died.

A taxpayer may carry out a self-assessment of tax payable for a reporting period. It is by a prescribed form which may be submitted electronically.

Where a taxpayer fails to submit a tax return, the Commissioner may make a default assessment and notify the taxpayer in writing. The notice includes all amounts due on the due date, penalties and interest. This assessment must be made within 5 years of the end of the reporting period except in cases of gross/willful neglect, evasion or fraud.

The Commissioner may also prepare an advance assessment before the date on which the return is due.

Measures to aid in collection and recovery of tax include:

Section

Details

32

Tax shall be a debt to the Government payable to the Commissioner.

 

33

A taxpayer may apply for extension of time to pay a tax due and Commissioner may either extend time or allow payment by instalments.

38

Interest is charged at 1% per month computed as simple interest. However, interest shall not exceed the principal tax liability.

34

Priority of taxes shall be: VAT, Excise Duty, Withholding Tax, and any amount that a payer is required to pay under a notice of a distress order. The taxes are not part of the estate of a person in liquidation/bankruptcy and must be paid to the KRA before any distribution made.

35

If penalties or interest exist, and less tax is paid than what is due, the amount paid shall be applied: Firstly, in payment of the tax, secondly, in payment of penalty, and, finally, against any interest

39

The Commissioner may recover an unpaid tax as a civil debt by filing a law suit. If it is less than KES 100,000 it shall be a summary debt.

Relief from payment of tax

The Commissioner may offer relief from payment of tax where: it is impossible to recover; there is undue difficulty or expense in recovering; or, there is hardship or inequity in relation to the recovery.

Security on Property

If a taxpayer fails to pay tax but owns land/buildings, the Commissioner may direct the Land Registrar to hold the land as security (in the form of a charge) for the tax.

Distress Order

A distress order can be issued by the Commissioner in writing for the recovery of an unpaid tax by distress and sale of the movable property of a tax payer.

Attachment of Salary

The Commissioner may attach a taxpayer’s salary or wages, up to a limit of 20% after payment of Income tax, until the entire unpaid tax is fully paid.

Preservation of Funds

Where a taxpayer has unpaid tax and is likely to frustrate the recovery of the tax, the Commissioner may in writing require any person holding funds belonging to the taxpayer to preserve such money and not deal with it in any way except as directed in the notice or by a Court.

Seizure, Detention and Forfeiture of Goods

The Commissioner may seize and detain goods on which tax has not been paid or he believes will not be paid, until the tax is paid. If unpaid, the goods shall be forfeited and may be sold. Sales proceeds shall be applied in the following order:

· Towards the cost of taking, keeping and selling the forfeited goods

· Towards payment of VAT/excise duty due

· The remainder shall be retained by the commissioner.

Departure Prohibition Order

An order may be given to the Immigration Department to prohibit leaving Kenya where the Commissioner reasonably believes that a person may leave without paying a tax.

When a taxpayer has overpaid a tax under a tax law he/she may apply to the Commissioner for a refund within 1 year of the date the tax was paid. An audit may be conducted to determine if the refund is valid.

Where there is an erroneous refund, the person to whom the refund is made shall repay the amount within 30 days of demand.

1.1 Statement of Reasons

Section 49 requires the Commissioner to give a statement of reasons for refusal of any application

1.1 Notice of Objection

A taxpayers can lodge an objection under the TPA, within 30 days, of any Commissioners decision. An objection must be raised before any other proceedings are launched. It shall contain grounds of the objection and the remedy sought to correct the decision and the reasons for such remedy. A time extension may however be granted if the taxpayer was absent from Kenya, sick, or for any other reasonable cause.

1.1 Appeals (Sec 52 -54)

Section 52 further allows an appeal to the Tax Appeals Tribunal (TAT) within 30 days if dissatisfied with the decision on the notice of objection following the procedure in the Tax Appeals Tribunal Act. Further appeal to the High Court must be within 30 days of the decision of the TAT. A further appeals may also be made to the Court of Appeal from the decision of the High Court. Appeals to the High Court shall be on a question of law only.

1.1 Out of Court or Tribunal Settlement.

The Act allows for an out court settlement to be reached with leave of the TAT or the High Court.

1.1 Public Ruling

The Commissioner may make a public ruling setting out his/her interpretation of a tax law and such ruling will be binding on him until it is withdrawn by notice. The ruling is however not binding on a taxpayer.

Section 63 provides that such a ruling shall be published in at least two nationwide newspapers.

Withdrawal of a ruling, is by public notice, however, the ruling continues to apply for transactions commencing before the date of withdrawal.

1.1 Private Ruling

A taxpayer may apply for a private ruling to the Commissioner for a transaction or proposed transaction. The ruling shall be issued within 45 days and shall bind the Commissioner.

Under Section 66 a private ruling may be declined if:

· The question has already been decided in a public ruling, published private ruling or by an assessment.

· The application is frivolous or vexatious

· Insufficient information is provided

· It would be unreasonable to make a ruling due to the resources required.

A private ruling may be published provided that the applicant’s identity is not disclosed.

 

1.1 Communications

The Commissioner must use the official languages of Kenya in communication. Section 75 also allows the Commissioner to authorise tax returns, applications, documents and payment of tax to be done via electronic/mobile means. Any such statement in electronic form is admissible as evidence of any fact stated in that document under Section 76.

Additionally, Certificates of Registration, Notices, and documents may be issued electronically.

1.1 Notices

The commissioner may serve a notice to a person by:

· delivering it to the person or their tax representative

· leaving it at or sending it by post to the person’s usual or last known place or business/residence

· transmitting it electronically.

The validity of any notice or document shall not be challenged by anyone who complies with it either wholly or partly

1.1 Forms

All tax returns, applications, notices, statements or other documents under a tax law must be in the prescribed form.

Any person may apply for a Tax Compliance Certificate (TCC). However, the TCC may be revoked if the person fails to pay any tax on demand or violates a tax law.

When the due date for paying a tax or submission of a tax return, application, notice or document falls on a weekend or public holiday, the due date shall be the previous working day.

Sec

Offence

Penalty

81

Failure to register/de-register for tax purposes

 

KES 100,000 per month (maximum - KES 1 million)

 

82

Failure to keep & maintain proper documents required by tax laws.

10% of the tax due (minimum -KES 100,000)

 

83(a)

Late submission of PAYE returns

Higher of 25% of tax or KES 10,000

 

83(b)

Late submission of turnover tax return

KES 5,000

83(c)

Late filing of any other tax return

5% of tax (minimum - KES 20,000)

 

83(2)

Failure to file any other document

KES 1,000 per day (max-KES 50,000)

86

Failure to submit online tax return or pay tax electronically when required

KES 100,000

 

84

Tax shortfall due to deliberate provision of false or misleading information

75% of shortfall due to fraud

20% on shortfall not due to fraud.

Increased by up to 25% for repeat offenders

Reduced by 10% for voluntary disclosure of shortfall.

 

85

Tax avoidance

 

200% of the amount avoided

 

87

Failure to appear before the Commissioner

KES 10,000 for individuals; KES 100,000 for any other case.

88

Fraudulent claim for refund.

200% of amount claimed.

91(1)

Using a false PIN on a tax return or other document used for the purposes of a tax law.

KES 1 million or 3 years imprisonment or both

91(2)

Obtaining a PIN using a false document, a forged document or through fraud, misrepresentation or deceit.

KES 1 million or 3 years imprisonment or both

92(a)

Failure by tax agent to notify the Commissioner when he ceases business as required by S. 22(1).

The higher of double the tax evaded or KES 5 million or 5 years imprisonment or both

  1. 92(b)

Where a tax agent breaches S. 21 on the limitation of the performance of tax services for taxpayers.

The higher of double the tax evaded or KES 5 million or 5 years imprisonment or both

92(c)

Tax agent assists a taxpayer to create a tax avoidance scheme, or evade tax.

The higher of double the tax evaded or KES 5 million or 5 years imprisonment or both

93

Failure to keep or maintain documents under a tax law; deliberately preparing or maintaining false documents; or, authorizing someone to falsify any document.

KES 1 million or 3 years imprisonment or both

94

Failure to submit tax return or other document

KES 1 million or 3 years imprisonment or both

95

Failure to pay tax by the due date.

KES 1 million or 3 years imprisonment or both

96

Deliberately making a false or misleading statement to a KRA officer

KES 1 million or 3 years imprisonment or both

97

Fraud in relation to tax

Higher of KES 10 million or double the tax evaded, or, 10 years imprisonment or both.

99

Failure to provide information or documents, to appear before the Commissioner when required or to provide assistance to the Commissioner during search & seizure

KES 1 million or 3 years imprisonment or both

100

Obstructing the Commissioner or an authorised officer in his/her duties

KES 1 million or 3 years imprisonment or both

101

Aiding, abetting, inciting or inducing another to commit a tax offence

Same sanction as imposed for the principal offence.

102

Offences by officers and staff of the KRA:

False entry of records, willfully contravening a tax law, failure to report an offence.

KES 2 million or 5 years imprisonment or both.

103

Offences by employees or agents or, for a company, by CEO, MD, Director, Secretary or Treasurer under a tax law

Shall be treated as also carrying out the offence.

  1. Registration of titles and stamping of instruments.
  2. Approval of development plans and payment of water deposits.
  3. Registration of motor vehicles, transfer of motor vehicles, and licensing of motor vehicles.
  4. Registration of business names.
  5. Registration of companies.
  6. Underwriting of insurance policies.
  7. Trade licensing.
  8. Importation of goods and customs clearing and forwarding.
  9. Payment of deposits for power connections.
  10.  All contracts for the supply of goods and services to Government Ministries and public bodies.
  11. Opening accounts with financial institutions and investment banks.

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