Executives to face personal liability for corporate tax

The Treasury has put chief executives on the spot with a proposal that they bear criminal liability in the event their firms engage in tax fraud.

Treasury Cabinet secretary Henry Rotich Thursday empowered the Kenya Revenue Authority (KRA) commissioner-general to open up books of account of companies to assess tax compliance in a fresh onslaught on tax cheats.

Mr Rotich further empowered KRA to determine penalties to be meted out to income tax offenders.

This means that the commissioner-general has powers of a court or tax tribunal to resolve disputes by subjecting offenders to fines in the form of monetary value and not jail terms.

“I propose to amend the Income Tax Act so as to empower the Commissioner to access books of accounts and where tax evasion is proved in court, collect corporate tax from officers of corporate bodies where they are convicted of tax frauds,” said Mr Rotich in his Budget statement.

“These rare but bold measures are intended to deter tax cheats and enhance tax compliance.”

The crackdown on corporate Kenya becomes the government’s latest measure to seal tax collection loopholes in its bid to finance the ambitious Sh1.6 trillion Budget.

Hefty penalties

The proposal to have KRA scrutinise companies’ financial records will force firms to fully declare their earnings and tax payments to avoid hefty penalties.

Under the Income Tax Act, the taxman is authorised to examine a company’s books dating back up to seven years.

In the event that tax fraud is established, the KRA commissioner-general has power to extend the investigation to cover an unlimited number of years. The proposal to have company directors pay up when their firms are caught up in tax evasion is aimed at enforcing good corporate governance.

“This is the second time the Treasury is proposing such a measure. It was also proposed by Mr Githae last year, it remains to be seen how it will be affected,” said PKF East Africa tax director Michael Mburugu.

Mr Rotich has invoked the principle of ‘‘unveiling the corporate shell’’ by placing the legal responsibility of companies on their boards.

Use of out-of-court settlements that involve negotiation, mediation and arbitration will greatly accelerate resolution of tax disputes.

“I propose to improve the compounding framework for income tax which should encourage taxpayers with tax offences to engage KRA and sort out their cases outside the courts,” Mr Rotich said.

Previously, KRA applied the concept in settling disputes arising from payment of customs duty.