Tax payers line outside the offices of Kenya Revenue Authority to file their tax returns. There is widespread confusion as to whether employees should file their annual tax returns with Kenya Revenue Authority.
There is widespread confusion as to whether employees should file their annual tax returns with Kenya Revenue Authority (KRA) following a proposal by the Finance minister to do away with the filing of returns by employees whose sole source of income is employment.
“In order to reduce unnecessary filing of tax returns, I propose to abolish the filing of returns by employees who have no other income and their PAYE has been paid to the Exchequer by their employers.” Mr Uhuru Kenyatta said in his Budget speech for the financial year 2011/12.
While abolishing the filing of returns, Mr Kenyatta pointed out that it was unnecessary for employees to file their returns as the employers has already complied through the filing of the monthly PAYE returns.
Prior to the directive by the minister, every individual was required to furnish to the commissioner a self-assessment of tax from all sources of income on or before on or before 30th June of the subsequent year.
Individuals who fail to file their tax returns on time are liable to a penalty equal to the higher of five per cent of the tax outstanding at the time of filing the return or Sh1,000.
Aware of the unnecessary administrative cost and time involved in filing of returns, this is definitely a welcome initiative for most employed Kenyans. However, there is confusion on when the minister’s directive should take effect. The Finance Bill prescribes that this measure takes effect on 9th June, 2011. With the year 2010 returns due on 30 June 2011, it is not clear whether the directive applies to the 2010 returns or it takes effects from the 2011 tax returns. Sections of the media have quoted the Commissioner of Larger Taxpayers Office, Mr. Njiraini stating that the 2010 individual tax returns are still due, muddling this issue even further. It is important to note that for the year of income 2010, the Income Tax Act and Finance Act 2010 was in place which made it compulsory to file individual tax returns. However, on 9 June 2011, this Section was amended to exclude from the filing requirement employees whose sole source of income is employment income since it is taxed at source.
This provision will stand unless it is changed during the enactment of the Finance Act, even then the provision will have the force of law during the intervening period.
Lately, there have been calls for clarification on the issue of filing the returns as the previous deadline draws near. Nothing can be clearer than the Finance Bill wording on this issue. The 2010 returns are not due!
Herman Wouk once said “Income tax returns are the most imaginative fiction being written today.” Nowhere does this statement hold more water than on the issue of employee tax returns.
Ms Ndichu is a tax advisor with KPMG Kenya. The views expressed here are personal .and do not necessarily represent the views and opinion of KPMG.
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