The Kenya Revenue Authority (KRA) has written to a number of businesses notifying them of overdue value added tax (VAT) balances prior to the launch of the iTax system in 2014, which could result in people unable to provide proof of payment with running bills. into a million shillings.
Most balances are due more than 10 years, the taxman said, with businesses that fail to pay before the tax amnesty program expires on June 30, 2024, facing additional penalty charges.
One notice posted a request for more than Sh11 million, with KRA asking the entity to “make arrangements to clear outstanding liabilities before June 30, 2024” to take advantage of the tax amnesty.
KRA said, however, this letter is not a tax demand notice, but an invitation to taxpayers to validate balances-effectively to show proof of payment. The balance is, therefore, subject to adjustments based on the information the business provides to the taxman.
“The balance has been communicated to the taxpayer that can be seen in the iTax profile. The migrated ledger balances relate to the period of 2014 and before and do not require notification, but the tax balances that must be revalidated by both parties based on additional information that can be provided,” said KRA. Everyday Business.
“Taxpayers have the opportunity to raise and resolve issues regarding debit/credit balances with KRA. However, KRA expects taxpayers who are not concerned about their debit ledger balances to migrate and communicate so that they can pay their outstanding taxes.
Due to the potential for the balance to increase or decrease during validation, KRA said it is unable to provide an overall figure of the amount it expects to collect from unpaid VAT.
Businesses who have received VAT letters have expressed concern about the potential impact of the demands on their business finances, while many small businesses are struggling to stay afloat in a tough economy.
Businesses have also raised issues with the long wait for KRA to issue their claims, especially due to the accumulation of fines.
According to the Tax Procedures Act, the period in which the KRA can issue or revise tax assessments is limited to five years from the date of the last report related to the assessment, unless there is an incident of fraud, tax evasion and willful neglect. part of the taxpayer.
Therefore, some businesses do not keep tax records for more than five years, and because of this provision, KRA has insisted on not increasing the assessment of taxpayers in the reconciliation exercise.
KRA started the reconciliation of taxpayer accounts in the old Integrated Tax Management System (ITMS) in 2020, after which the balances will continue to be transferred to the iTax system, starting with large and medium taxpayers.
The iTax system was introduced in 2015, replacing the Integrated Tax Management System (ITMS), which has been in place since 2009.
Prior to 2009, KRA used a return system that required manual entry of returns by its staff after they were submitted by taxpayers, meaning that withholding tax deducted at source could escape KRA’s attention.
With the introduction of ITMS, taxpayers can pay their dues directly into their KRA account, but the system is semi-automated, with tax officers still issuing receipts proving they have remitted taxes via bank transfer.
Therefore, the iTax system was introduced to remedy this, allowing businesses to pay and file taxes online.
The tightening of VAT reporting and payment is enhanced by the introduction of the electronic Tax Invoice Management System (eTIMS), which has automated tax invoices, giving KRA more visibility into business income.
By the end of April, 236,000 businesses had been onboarded in eTIMS, with another 679,000 targeted for onboarding remaining on the radar.
Of those on board, only half actively submit invoices through the system, causing headaches for the government’s efforts to broaden the tax base and improve compliance already on the register.
