Inside KRA’s tax penalties and interest amnesty program
Taxpayers in Kenya can avail themselves of a tax amnesty for outstanding tax penalties and interest that have accumulated until December 31, 2022. Professional services firm PwC offers guidance on how taxpayers, who have either settled their principal tax obligations or intend to do so by June 30, 2024, can take advantage of the tax penalties amnesty provided by the Kenya Revenue Authority (KRA).
The provision for this amnesty stems from the government’s objective to boost tax compliance and generate tax revenues to meet the FY2023/24 budget. The plan was formally introduced through the Finance Act of 2023 and became effective on September 1, 2023.
To benefit from this amnesty, eligible individuals and entities can apply through KRA’s iTax portal or visit their nearest KRA offices. In this article, we will provide an overview of what this tax amnesty encompasses, its advantages, and the necessary steps to seize this opportunity.
Understanding tax amnesty
The tax amnesty, as introduced by the Finance Act of 2023, enables taxpayers to regularize their tax compliance status. It specifically targets outstanding penalties and interest that have accumulated before December 31, 2022.
Eligibility extends to situations where the principal tax has already been settled or if the taxpayer intends to clear it by June 30, 2024.
Further, this amnesty encompasses penalties and interest arising from activities such as amending tax returns, iTax ledger reconciliations, system-related issues, and tax disputes, provided they fall within the qualifying period preceding December 31, 2022.
However, it does not apply to penalties and interest arising from tax avoidance assessments or those incurred from January 1, 2023, onward.
The tax amnesty covers a wide spectrum of taxes, including Corporate Income Tax (CIT), Withholding Tax (WHT), tax on capital gains (CGT), Pay As You Earn (PAYE), Value Added Tax (VAT), and Excise Duty.
Successful applicants for the tax amnesty can enjoy several key advantages, including full relief from penalties and interest. All penalties and interest accrued until December 31, 2022, will be entirely waived, considerably alleviating the financial burden on taxpayers.
Additionally, taxpayers will have the opportunity to establish a flexible payment plan for the outstanding principal taxes due, with a deadline set for June 30, 2024. This flexibility aims to ease the financial obligations of those seeking to settle their tax liabilities.
Further, successful applicants will attain a clean and penalty-free tax ledger, providing peace of mind and enhancing their financial standing.
Why take action?
It is crucial to act promptly since the tax amnesty is available for a limited time. Given that it encompasses various tax categories, including PAYE, corporate tax, withholding tax, excise duty, VAT, and tax on capital gains, it is essential to promptly review all your tax obligations. This proactive approach will enable you to benefit from a clean iTax ledger, free from penalties and interest.
Under KRA’s automatic amnesty programme, two distinct categories of taxpayers will be affected. The first category involves individuals and entities with outstanding penalties and interest associated with principal taxes paid before December 31, 2022.
For this group, the amnesty is granted automatically. No formal application to the Commissioner is necessary. Instead, the KRA is diligently working to configure the iTax system to automatically clear penalties and interest where no outstanding principal tax remains.
This automatic amnesty provision underscores the government’s commitment to simplifying the compliance process for eligible taxpayers.
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Application-based amnesty
The second category comprises taxpayers with outstanding penalties and interest linked to principal taxes that are still unpaid as of December 31, 2022. To benefit from the tax amnesty in this scenario, individuals and entities must submit a formal application to the Commissioner. The application process serves as a critical step toward rectifying their tax compliance status.
Key components of the application include detailing the proposed payment plan for the outstanding principal tax. Taxpayers who intend to settle their outstanding principal tax in installments must outline their payment schedule in the application.
This flexibility in payment terms aims to ease the financial burden on individuals and entities seeking to clear their tax liabilities.
Manual application option
While the KRA works on configuring the iTax system to accommodate online applications, taxpayers who wish to apply for the tax amnesty can opt for a manual application. The revenue authority has provided a manual application form for this purpose.
This alternative ensures that individuals and entities can access the benefits of the tax amnesty while the online application system is being prepared.
