Lessons from KRA tax amnesty

According to the financial year’s revenue outturn the Kenya Revenue Authority (KRA) has released, the tax amnesty programme netted Sh43.9 billion against the targeted Sh51.0 billion, translating to an 86.08 percent performance rate.

The programme, which lasted nine months between September 1, 2023 and June 30, 2024, was brought to life via Finance Act 2023’s amendment to the Tax Procedures Act introducing Section 37E, which barred the KRA from recovering any penalties or interest from tax debt where the taxpayer had paid all principal tax due before December 31, 2022.

The design of the amnesty was such that it was automatic for any taxpayer with penalties and interest but no principal taxes due for periods up to December 31, 2022.

If a taxpayer had not only penalties and interest but also principal tax arrears for the period up to December 31, 2022, it would not be automatic, and the taxpayer would be required to make an application to tap the amnesty armed with a payment plan.

Now that the tax amnesty has drawn to a close, what lessons can we draw from it? A few thoughts from me.

My first inference from the just wound-up amnesty is that there are potentially a huge number of large legacy tax arrears that were locked out of the window for tapping the amnesty. As of the May 14 KRA update, the amnesty had mobilised Sh22.69 billion, registering a measly 44.5 percent performance rate.

Six weeks later, at the close of the amnesty programme, this figure had surged to Sh43.9 billion at an 86.08 percent performance rate. This suggests there was a last-minute rush to tap into the amnesty programme at play, and many, especially those with large legacy arrears missed the opportunity to regularise their books with the authority.

My second inference from the amnesty programme ties closely with the first one. As of the May 14 update, 640,069 taxpayers had taken advantage of the programme.

Six weeks later, this figure had swelled to 2,617,111 taxpayers, representing more than four times the amount reported just the month before. This suggests either there was poor visibility of and awareness about the amnesty among taxpayers or, for one reason or another, taxpayers generally gave the programme a wide berth until the last leg.

My third inference from the amnesty programme deals with what I think are reporting gaps by the authority. Whereas KRA had done a fantastic job with periodic updates on the amnesty performance, the final release fell far short of expectations.

The taxman should have given more colour to the Sh43.9 billion collected. What proportion was attributable to direct taxes like corporate income tax and pay-as-you-earn? What proportion was attributable to indirect taxes like excise and value-added tax? What proportion of the Sh43.9 billion is attributable to large taxpayers, and which is attributable to small taxpayers? I also noticed that KRA’s final release opted to be silent on the crucial remission amount, which should be in the public domain for any amnesty programme.

Bolstering compliance

I close my thoughts on the 2023–24 tax amnesty programme with a proposal. In the last month of 2022–23 (June 2023), the government instituted a penalty and interest waiver that was famously dubbed ‘60:40’.

The arrangement was such that, in the interest of bolstering tax compliance and regularising books with the taxman, the state would waive 40 percent of penalties and interest. The taxpayer would settle the remaining 60 percent.

Why not revive the 60:40 waiver provision to dial down the Tax Amnesty Programme, especially because many could have been locked out of the benefit purely because they banked on the extension proposed in the now-withdrawn Finance Bill 2024?

Revival of the 60:40 waiver programme would go a long way in boosting tax compliance coming on the back of not just the Tax Amnesty Programme but also the Voluntary Tax Disclosure Programme, which ran between January 1, 2021, and December 31, 2023.

The writer is a journalist.