The Kenya Revenue Authority has sent letters to dozens of businesses notifying them of overdue VAT balances accumulated before the introduction of iTax in 2014, which could hit those unable to provide proof of payment with invoices running into millions of shillings.
Most of the balances date back more than 10 years, the IRS director said, with businesses that fail to make payments before the tax amnesty program ends on June 30, 2024, facing additional penalties.
One notice sent a demand for over Sh11 million, with the Kenya Revenue Authority asking the entity to “make arrangements to settle the outstanding liabilities before June 30, 2024” to avail of the tax amnesty.
However, the Kenya Tax Authority said these letters are not tax claim notices, but rather an invitation to taxpayers to check balances – to actually show proof of payment. As such, balances are subject to adjustment based on the information companies provide to the tax authority.
“These balances have been communicated to the concerned taxpayers and can be viewed in their iTax profiles. The migrated ledger balances relate to the period 2014 and earlier and are not claim notices but are tax credits subject to re-verification by both parties based on any additional information that may be provided,” the Kenya Tax Authority told the KTA. The daily business.
“Taxpayers have the opportunity to raise and resolve any concerns they may have regarding debit/credit balances with the Kenya Revenue Authority. However, the Kenya Revenue Authority expects taxpayers who do not have any concerns regarding the debit ledger balances carried and reported to arrange for payment of the taxes due.”
Because balances may rise or fall when verified, the Kenya Revenue Authority said it would not be able to provide a total figure for the amount it expects to collect from unpaid VAT.
One entrepreneur who received the VAT letter expressed concern about the potential impact of the requests on business finance, at a time when many small businesses are struggling to survive in a tough economy.
Companies have also raised issues due to the long wait for the Kenya Revenue Authority to issue them with the claim, especially due to accumulated penalties.
Under the Tax Procedures Act, the period within which the Kenya Revenue Authority can issue or amend a tax assessment is limited to five years from the date of the last report to which the assessment relates, unless there is a case of fraud, tax evasion or wilful negligence on the part of the taxpayer.
Therefore, some companies do not keep tax records for more than five years and as a result of this ruling, the Kenya Revenue Authority has been keen to stress that it does not raise taxpayers’ assessments in the reconciliation exercise.
The Kenya Tax Authority began reconciling taxpayer accounts in the legacy Integrated Tax Management System (ITMS) in 2020, after which these balances will be gradually migrated to iTax, starting with large and medium taxpayers.
iTax was introduced in 2015, replacing the Integrated Tax Management System (ITMS), which had been in place since 2009.
Prior to 2009, the Kenya Revenue Authority used a returns system that required returns to be manually entered by its staff once they were filed by taxpayers, which meant that any withholding taxes deducted at source were liable to escape the attention of the Kenya Revenue Authority.
With the introduction of the IT management system, taxpayers were able to pay their dues directly into the Kenya Revenue Authority accounts, but the system was semi-automated, with the tax officer still issuing receipts evidencing the remittance of taxes through bank transfers.
Accordingly, iTax was introduced to address this problem, allowing businesses to pay and file their taxes online.
The tightening of VAT reporting and payments was further enhanced with the introduction of the Electronic Tax Invoice Management System (eTIMS), which has automated tax invoices, giving the Kenya Revenue Authority greater clarity on business income.
By the end of April, 236,000 companies had integrated into eTIMS, with another 679,000 companies that were targeted for integration remaining off the radar.
Of those on board, only half were actively submitting invoices through the system, posing a headache for the government’s efforts to broaden the tax base and boost compliance by those already registered.