The penalty for filing annual tax returns past the June 30th deadline is set to reduce under the proposed changes to the Tax law, a decision which will in turn, boost the savings for homes and businesses which pay taxes on time.
If the amendment of Tax Procedures Act 2015 is approved by legislators and subsequently agreed to by President Uhuru Kenyatta, the fine for late tax filing, will now be based on the amount which has not been paid to the Kenya Revenue Authority (KRA).
This is a far cry from the current law where the penalty for late filing of returns is based on the total tax which was due in the preceding year.
The proposed amendment to Section 83 of the Tax Procedures Act through the Finance Bill 2019 says, “The amount of tax payable or due under the return shall be reduced by the amounts already paid and withholding tax credits.”
Individual taxpayers such as employees for example, are currently fined 2,000 Kenyan Shillings or five percent of the annual tax payable in the year the return is meant to capture, whichever is higher.
On the other hand companies, face a penalty of 20,000 Kenyan Shillings or five percent of the tax payable in the year the return is meant to capture, or whichever is higher.
The Commissioner for Domestic Taxes Department Elizabeth Meyo stated that the proposed changes to the law will lessen the burden on employees and businesses who have already paid taxes and double as an incentive for businesses and employees to pay taxes on time.
According to the Commissioner; Elizabeth Meyo, “Previously, taxes were imposed on all due liabilities without giving credit of withholding tax already paid. The iTax system will now impose a penalty only on unpaid taxes and not on the tax payable, which appears in the return.”
Calculations in the proposed law shall be based on the amount not paid to the Kenya Revenue Authority (KRA). As a result, the current liability where the Kenya Revenue Authority (KRA) uses total tax which was payable the previous year, will be reduced.
As an example by Business Daily Africa phrased it, an employee who has been taxed 22,656.30 Kenyan Shillings on his or her 100,000 Kenyan Shillings monthly pay will only pay a 2,000 Kenyan Shilling fine under the proposed law if he or she misses the 30th of June 2019 deadline for filing returns, as opposed to 13,593.78 Kenyan Shillings which is five percent of his or her 271,875.60 Kenyan Shillings annual tax (22,656.30 multiplied by 12 months) which has been paid by his or her employer.
