Millions of Kenyans may be blocked from accessing critical public services beginning next month as the taxman moves to punish tax cheats with the termination of personal identification numbers (PINs).
The Kenya Revenue Authority (KRA) said in a public notice that it will deregister all taxpayers who have not migrated their profiles to the online platform beginning September 1 as part of a wider plan to smoke out tax cheats.
“KRA has noted that there are taxpayers, who have not migrated their PINs into iTax while others taxpayers, who are already on iTax, are either not filing or are filing nil or no returns,” the notice said.
Taxpayers who are yet to migrate their PIN information to the iTax — KRA’s online tax payment portal — have a month to do so or be taken out of the system with serious consequences to their businesses.
iTax-compliant taxpayers who have not filed returns in the past three months, or are submitting nil returns despite evidence of having steady incomes have also been put on notice.
Taxpayers cut off
This impending and unprecedented deregistration of PINs will see millions of Kenyans cut off from making critical transactions that require proof of active registration as a taxpayer.
The list of transactions that require proof of an active PIN certificate includes registration of land titles, approval of development plans, registration, transfer and licensing of motor vehicles, and registration of business names and companies.
Others are underwriting of insurance policies, customs clearing and forwarding, payment of deposits for power connections, supplying goods and services to the State, as well as opening accounts with financial institutions.
This unprecedented move is set to hit businesses and individuals hard.
For instance, if a deactivated taxpayer supplies goods to Company X and charges value added tax (VAT), the recipient of the service will not be able to claim a refund when filing returns since the iTax system will not recognise the supplier.
A similar scenario will play out when Company Y attempts to wire a consultant’s withholding tax to the KRA for services rendered.
The law requires withholding agents to settle invoices only after remitting the tax, failing which they will be liable to a hefty penalty.
If the consultant has been struck off the KRA’s roll, Company Y could opt to hold onto their dues until they are reactivated as opposed to settling the invoice for a “non-existent” taxpayer.
Compliance hurdles also await employers since monthly Pay As You Earn (PAYE) deductions can only be credited to active KRA accounts held on the iTax platform.
“We advise that all taxpayers and the public use the “PIN Checker” link available on the iTax portal to verify details of their suppliers and confirm if their PINs are active,” the KRA said.
The iTax system was launched in October 2013 to increase efficiency and boost compliance.
The platform enables taxpayers to file returns from any location with Internet connection without having to physically move to the taxman’s premises.
The KRA, with effect from August 1, 2015, made it mandatory for taxpayers to file returns through the portal as it switched from the cumbersome manual system.
Failure to file returns on time attracts a Sh10,000 fine or 25 per cent of salaried workers’ tax bill, and Sh5,000 in case of SMEs that are subject to turnover tax.
Other business incomes are liable to a fine of Sh20,000 or five per cent of tax liability.
Despite the mandatory shift to iTax and hefty fines for noncompliance, millions of Kenyans are still holding old PIN certificates and as a result have not been filing their returns.
Another set of taxpayers updated their profiles on the KRA portal but, for nefarious (tax evasion) or purely lethargic reasons, fail to file their returns when they fall due.
In the six months to June 30, 2017, 50 per cent of the 4.8 million registered taxpayers failed to file their 2016 returns. This number is higher than the 2.3 million Kenyans who breached the tax return filing deadline within the same period in the 2015 financial year.
The KRA, which is under pressure of increasing tax collection targets, has now upped the ante, seeking to cripple taxpayers’ transactions in a bid to force them to embrace compliance.
The taxman had not responded to queries on how it plans to implement the new directive by the time of going to press.
It remains unclear whether deactivated taxpayers will part with a fine for their accounts to be restored.