A total of 953,971 Kenyan taxpayers who did not file their tax returns by the deadline day are staring at penalties by the Kenya Revenue Authority (KRA).
Out of the targeted 9 million taxpayers, only 8,046,029 had filed their returns by June 30, 2024, which was the set deadline. The number was however higher by 1.7 million compared to those who filed their returns in 2023 for the financial year of 2022.
Those who fail to meet the tax filing deadline are by law exposed to a fine of 2000 Kenyan shillings or a sum of 5% of the individual’s tax bill. Whichever amount is higher automatically becomes the penalty for the individual.
For companies, a 10,000 Kenyan shillings penalty is imposed or 5% of the tax payable on the year of return. As with individuals, companies pay the highest fine applicable.
The days leading to the June 30th deadline saw a surge in the number of filings. KRA reported that it had been processing over 100,000 filings on June 27.
As is the norm, the daily numbers are known to increase as the deadline approaches, with taxpayers utilizing the last minutes to file their returns and avoid penalties. The taxman was considerate enough to extend its working hours across service centers in the country.
Various Huduma centers and contact outlets remained open for a bit longer to assist the massive numbers of taxpayers in filing their returns. Amid the struggles to meet collection targets, filing returns has become one of KRA’s methods to grow the income tax segments and curb tax cheats.
According to the law, anyone bearing a personal identification number is required to file tax returns whether they are employed or not. Those who are not employed are required to file nil returns via the iTax portal.
KRA’s Tax Collection Target
In President Ruto’s bid to collect more taxes, pay some of the foreign debt, and have the Kenyans live by their own means, even the gambling and entertainment industry hasn’t been left out when it comes to paying taxes.
According to the Betting, Lotteries and Gaming Act of Kenya, winnings from physical and online casinos, prize competitions, and lotteries are taxed at the rate of 15%.
Despite the introduction of two new tax bands targeting top earners, KRA recorded its highest shortfall in tax collections from employees. The National Treasury’s quarterly reports revealed that KRA missed its pay-as-you-earn (PAYE) target by Sh72.3 billion in the first nine months of the most recent financial year, which concluded on June 30.
The taxman had set a target of collecting 463.3 billion shillings from salaries in the period ending March. However, KRA only raised 390.96 billion shillings and missed its target by 15.6%.
The Income Tax Act was amended via the Finance Act 2023 to introduce two individual tax bands that targeted high earners. A tax band of 32,5 percent was introduced for individuals with a monthly income of between 500,0000 and 800,000 Kenyan shillings. A 35 percent tax band was also introduced for any income that is above Sh800,0000.
Other Offences and Penalties in Filing and Paying
Besides failing to file annual returns by the due date and attracting a punitive penalty, other offenses and penalties include: failing to deduct, account for, or submit a PAYE certificate which incurs a penalty of either 25% of the tax amount or Ksh. 10,000, whichever is higher.
Failure to deduct or remit Withholding Tax results in a 10% penalty on the tax amount, capped at Ksh 1 million.
Failure to remit Excise Duty or VAT triggers a penalty of either 5% of the tax owed or Ksh. 10,000, whichever is higher. Missing a tax deadline also results in a 20% penalty on the amount owed.
The Proposed Tax Measures on the Recently Withdrawn Finance Bill 2024
The Kenyan government sought to raise $2.7 billion in additional taxes in the 2024/25 Finance Bill. The plan was to reduce the budget deficit and borrowing.
Kenya’s public debt is currently 68% of GDP, which is more than the IMF and World Bank’s recommended level of 55% of GDP. The finance bill, however, sparked nationwide protests with the public rejecting the proposed measures in their entirety.
The proposed measures comprised new taxes on staple goods like sugar, vegetable oil, and bread as well as a new motor vehicle circulation tax that is set at 2.5% of an automobile’s value and must be paid annually.
The bill also proposed to increase the existing taxes on various financial transactions like M-PESA. An “eco levy” on most manufactured goods had also been tabled with diapers and sanitary towels being exempted in earlier amendments following the public uproar.
The minor adjustments on the bill did not help to ease the pressure as the protests saw police violence, forcing the president to withdraw the whole bill and return it to parliament for all its clauses to be deleted.
Ruto said the government would now have to find another source of revenue to help tackle the fiscal deficit. In his address to the nation, he said the government would work on austerity measures which included cutting the president’s own budget on operational expenditures including renovations, vehicle purchases, and travel.
