KRA’s tough rules for trade across borders to boost taxes


Times Tower in Nairobi, the headquarters of Kenya Revenue Authority (KRA). FILE PHOTO | NMG

The government has set sights on cross-border transactions as it targets sealing loopholes that allow firms to pay less than their fair share of taxes.

In a public notice, the Kenya Revenue Authority (KRA) says companies in Kenya with transactions involving non-resident persons will disclose the deals, including the nature and amount paid on the iTax platform.

“The Income Tax Company Return on the iTax platform has been enhanced to provide for declaration of related party transactions by persons with related parties and whose ascertainment of gains of profits from a business is subject to the previous sections 18 or 18A of the Income Tax Act”, the KRA states in the notice.

Tax experts say this is one of the steps being taken to address the challenges occasioned by transfer pricing.

Transfer pricing relates to the determination of the cost of transactions across jurisdictions and has often been reported to be manipulated by some multinational firms who exploit jurisdictions with relatively higher tax rates to transfer businesses to those with lower rates.

“This means KRA wants to have sight of all transactions. Many multinationals often deem transfer pricing policies as a good to have but not a must-have and this has been a challenge. With this new provision of reporting through iTax, KRA will have sight of all cross-border transactions on an ongoing basis and can easily undertake a transfer pricing audit,” said Alex Kanyi, a Partner at tax consultancy firm Cliffe Dekker Hofmeyr.

The government targets reducing the corporate income tax foregone in Kenya by at least Sh1.5 billion in the 2023/2024 fiscal year.

In the 2023 Budget Policy Statement, the National Treasury said it plans to reduce the country’s corporate income tax gap from 32.2 percent to 30 percent, implying plans to scale down the estimated amount foregone from Sh21.6 billion to Sh20.2 billion.

“This is the start of country-by-country reporting. With this data, KRA will have targeted interventions where they believe that there has been tax base erosion. This is also tied to the Finance Bill 2023 amendments to Section 10 of the Income Tax Act on disregard of the withholding tax paid,” said Robert Waruiru, the chairperson of the Institute of Certified Public Accountants of Kenya public finance committee.

Over the past five years, the KRA has collected an average of Sh367.3 billion in revenue through corporate income tax, making it the second largest source of tax revenue after Pay As You Earn.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.