The penalty for filing annual tax returns past June 30 deadline is set to drop under proposed changes to the law, boosting savings for homes and businesses which pay taxes on time.
The fine will now be based on amount which has not been paid to the Kenya Revenue Authority (KRA) if the amendment of Tax Procedures Act 2015 is approved by legislators and subsequently assented to by President Uhuru Kenyatta.
This is opposed to the current law where the penalty for late filing of returns is based on the total tax that was due in the preceding year.
“The amount of tax payable or due under the return shall be reduced by the amounts already paid and withholding tax credits,” says the proposed amendment to Section 83 of the Tax Procedures Act through the Finance Bill 2019.
Individual taxpayers such as employees are currently fined Sh2,000 or five percent of the annual tax payable for the preceding year, whichever is higher.
Companies, on the other hand, face a penalty of Sh20,000 or five percent of the tax payable in the year the return is meant to capture, or whichever is higher.
Commissioner for Domestic Taxes Department Elizabeth Meyo said the proposed changes to the law will lessen the burden on employees and business who have already paid taxes as an incentive for paying taxes on time.
“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,” Ms Meyo said.
In the proposed law, calculations shall be based on the amount not paid to the KRA, reducing the current liability where the taxman uses total tax which was payable the previous year.
An employee taxed Sh22,656.30 on his Sh100,000 monthly pay will, for example, pay a Sh2,000 fine under the proposed law if she misses the June 30 deadline for filing returns, instead of Sh13,593.78 — being five per cent of her Sh271,875.60 which has been paid by her employer.