What Happens if You Don’t File KRA Taxes on Time?

Taxpayers have less than a month left to the June 30, Kenya Revenue Authority (KRA) deadline to file their tax returns. The authority gave out a six month period for Kenyans to file returns for the financial year starting January 1, 2021, to December 31, 2021. 

As long as you have a KRA PIN number which every individual above the age of 18 should have, this is the time to file your returns and avoid unnecessary penalties from the taxman.

KRA returns are filed for a particular year of income and should be completed between January 1 - and June 30 of the following year. For instance, for the tax period 01/01/2021 - 31/12/2021, returns should be filed on or before June 30, 2022.

Companies have different accounting periods and file returns depending on this. For instance, if the year starts January 1 - December 31, the company should file its returns on or before June 30 of the following year.

Filing returns is simplified by the online tax return platform (iTax), accessible on the KRA portal (iTax.kra.go.ke). 

In this article, you will learn about tax returns, penalties associated with late filing of returns, tax evasion, tax avoidance and associated punishment.

What are tax returns?

Tax returns refer to a declaration of income earned by an individual, business or company within a particular financial period. For instance, returns for the period between January 1, 2020, to December 31, 2020.

According to data from KRA, only 5.5 million Kenyans filed their tax returns, against an adult population of 25.64 million by the end of June 2021. This means the majority of Kenyans failed to file returns for the financial year 2020.

From these data, the authority embarked on measures to track down tax evasion and avoidance. It also imposed fines on taxpayers who failed to file their returns or filed past the deadline. 

Some of the measures included the Huduma Act 2021, which the authority backs on to replace the unique PIN allocated to taxpayers with the Huduma Namba.

The bill is currently in the National Assembly and if passed into law, everyone above 18 years old and enrolled in Huduma Namba will be required to file tax returns.

"Huduma Namba assigned to an individual under the Huduma Act, 2021 shall serve as the PIN for the purpose of tax law," reads the bill in part.

Nil Returns

Individuals who have a KRA PIN  but do not have income declaration data for a given tax period file nil returns. For example, if you were not employed or did not earn any taxable income for the 2021 return period, you should file nil returns before June 30, 2022.

Read Also: How to File KRA iTax Nil Returns 2022

Penalties for Late Filing of Returns

If you file your returns after the June 30 deadline, you will attract penalties for late filing. Individual taxpayers should observe this directive to avoid attracting unnecessary fines from the taxman. 

Late payment of tax attracts a 1% monthly tax penalty according to the amendment of the Tax Procedures Act 2015.

For companies, late filing of returns occurs when the six month period given to file returns for a particular financial year, lapses. All these scenarios attract penalties from the authority.

If an individual or company fails to file returns in the required time they attract a penalty for late filing:

• Late filing of individual returns (PAYE) attracts 25% of the tax due or Ksh 10,000 whichever is higher.
• Late filing of Withholding tax attracts 10% of the tax due, or Ksh1 million whichever is higher.
• Late filing of Monthly Rental Income (MRI) returns attracts 5% of the tax due or Ksh2,000 whichever is higher or Ksh 20, 000 for non-individuals.
• Late filing of Excise Duty, Value Added Tax (VAT) attracts 5% of the tax due or Ksh10,000 whichever is higher.
• Late filing of income tax company/partnership attracts a 5% of the tax due or Ksh20,000 whichever is higher.
• Failure to pay tax on the due date attracts 20% of the tax due.
• Failure to file annual returns by the due date attracts additional tax equal to 5% of the normal tax, or Ksh 10,000 for Non-Individual Taxpayers.

PIN Deregistration 

PIN deregistration refers to when KRA deletes your tax record from the iTax database. This is a penalty that is imposed if a taxpayer fails to file previous tax period returns and the current financial year.

In a notice published in May 2021, the authority warned tax evaders and those filing returns late that they risk losing their Personal Identification Numbers (PINs) by July 1, 2021.
If your PIN is deregistered, as an individual, you will not be able to apply for jobs, open bank accounts or register pieces of land among other essential services that require a PIN number. Companies may not be able to access government services.

Tax Evasion and Tax Avoidance

Tax evasion 

This refers to the deliberate or illegal act of not paying and/or underpaying taxes. If a taxpayer is involved in concealing income data or information from the tax commissioner or authority, they are engaging in tax evasion, which attracts fines and penalties.

Income Tax Act 2015 states that a person shall be guilty of an offence if he/she, without reasonable cause, makes an incorrect income return by omitting or understating any income which they should have stated.

This involves giving false information like understatement on imports value by a company, failure to deduct withholding tax, and issuing false financial statements to the authority.

Examples of tax evasion include failing to register as a tax entity, failure to furnish tax returns, and failure to keep tax records.

Tax Evasion Penalties 

Section 93 of the Tax Procedures Act (TPA) 2015,  prescribes an offence where a taxpayer fails to keep, retain, or maintain a document required to be kept in accordance with a tax law without reasonable excuse. These documents include invoices and receipts supporting expenditure.

Section 97 (a) of the TPA provides that any person who knowingly omits from his tax return an amount which should have been included commits an offence. 

Therefore, a taxpayer found culpable under Section 97 of the TPA is subject to a fine not limited to Ksh10 million or double the tax evaded. The taxpayer could also be sentenced to a prison term not exceeding ten years, or both the fine and imprisonment.

Section 45 of the Anti-Corruption and Economic Crimes Act (ACECA) prescribes a fine not exceeding Ksh1 million, a prison term not exceeding 10 years or both. It also provides an additional fine equivalent to the tax evaded.

Tax avoidance 

Tax avoidance refers to the exploitation of loopholes in tax laws to minimise tax liability. It involves using legal methods of reducing taxable income or tax owed. The taxpayer restructures the tax affairs to pay the least amount of tax due. 

It differs from tax evasion, which involves lying on your income tax form or any other form.

Section 23 of the Income Tax Act Cap 470 gives the tax commissioner powers to collect taxes avoided if the authority learns that certain transactions were made to reduce taxpayer tax payable.

Tax Avoidance Penalty

According to the Tax Procedures Act (2015), a tax avoidance penalty is twice the amount avoided, which is a 200% penalty.

Tax Return Errors

While filing returns, you could make mistakes with the income data you are declaring to KRA. These errors include:

• Inaccurate information - you could enter wrong information on wages, dividends, bank interest, and other income received or giving a wrong computation.
• Incorrect tax obligation- you could, for example, be filing returns for income tax non-resident when you are a resident.
• Wrong bank account details - in case the tax platform or excel sheets require bank details then you key in the wrong details.
• Incorrect personal relief and pension amount filed.

Once you realise that the above information was not correctly filled after filing for your returns, you can amend your tax data and file amended returns.

Filing Amended Tax Returns

To file amended returns, log in to the iTax portal (iTax.kra.go.ke) using your KRA PIN, and password and follow the prompts.

Once on the homepage, go to file returns and select File Amended Return from the drop-down menu. Follow the prompt by selecting your tax obligation, and return period and download the excel sheet from which you will make changes.

Correct the affected entries in the sheet like pension, personal relief, bank account and withholding tax if any, validate and upload it to the iTax and submit.

Wrapping Up

This is the ideal time to file your returns and avoid being penalised by the tax authority. Filing your returns on time will keep your KRA data sheet clean and make it easier to get services like getting a job, opening a business and accessing government services.

KRA has been stepping up the fight against tax evasion, fraud and late filing of returns. The Finance Bill 2022 proposed plans to have tax evaders pay a deposit of 50% before petitioning the authority but the amendments were shot down by members of parliament.

The authority is keen on punishing tax offenders in the country.