Deliberate non-payment or underpayment of taxes poses a significant challenge to revenue collection and economic development.
It has dire ramifications on the national and fiscal security. In response to this existential threat in Kenya, and even globally, governments have invested heavily in systems for efficiency in collection of taxes and detection of tax evasion.
The Kenyan tax regime is that of self-assessment by registered taxpayers. This affords the taxpayers opportunity to declare their income chargeable to tax in form of tax returns, which are constantly audited by the Kenya Revenue Authority (KRA), for accuracy.
In case of discrepancies in the declarations vis- Ã -vis the established actual income, taxpayers are expected to bridge the gap or provide documents in support of their position. Generally, the taxpayers bear a perpetual burden of proving the correctness of their self-assessments.
Alongside the system for detection of tax cheats, there exists instruments of compulsion i.e. enforcement tools. Where a taxpayer is not able to bridge the shortcoming or make good the shortfall, enforcement measures kick in, among them prosecution.
Prosecution of tax offences is an internationally recognised tax enforcement tool making it the first Principle of the Organisation for Economic Cooperation and Development's 10 global Principles which focus on supporting developing countries in revenue mobilisation by ensuring tax evasion is criminalised.
Article 10 of the Constitution is the cornerstone of the nation's governance, embodying the fundamental values and principles that guide the republic. Among these principles, the rule of law stands out as a crucial element in ensuring justice, fairness and equality in society.
The prosecution of tax offenders serves therefore as a vital tool in upholding the rule of law. It ensures that those who violate tax laws are held accountable for their actions, thus reinforcing the integrity of the tax system by building public trust in the tax system and the tax administration.
Prosecution of tax fraud also serves as a critical mechanism in deterring the perpetration of tax offences. By pursuing criminal charges against tax evaders and fraudsters, the government sends a strong message that fraudulent tax evasion is prosecutable and punishable by law and hence discouraging others from attempting similar actions.
This promotes a culture of compliance and in so doing, the country is guaranteed of optimal realisation of revenue and increased stability and predictability in the tax system.
The effectiveness of tax law administration often hinges on robust legal framework that address existing gaps and challenges. KRA makes key legislative proposals annually to enhance the rule of law in tax administration, ultimately promoting a fairer, transparent and efficient tax system that upholds the rule of law and supports the nation’s development goals.
As such, legislative enactments such as the Tax Procedures Act, Excise Duty Act and Excisable Goods Management System Regulations and East Africa Community Customs Management Act feature offences and corresponding penalties which include fines and imprisonment.
In Kenya some of the taxpayers’ actions that constitute tax offence and lead to prosecution include; deliberate failure to file tax returns, gross under declaration or omission of income, concealment of income, falsification of records, and claiming incorrect refunds, deliberate failure to comply with tax obligation accompanied by aggravating factors such as the amount of tax evaded, if offence is committed repeatedly or if two or more tax heads are affected, the extent of deliberation and planning to commit a tax fraud, aiding and abetting commission of tax offences.
Other offences are; misdeclaration of imported or exported goods, undervaluation of goods and tariff misclassification. It is also an offence to obstruct an authorised tax officer conducting official duties.
To ensure successful prosecution, KRA works closely with the Office of the Director of Public Prosecutions. This collaboration is crucial in building strong cases that can withstand legal scrutiny and result in convictions.
Prosecution is not a bar to payment of taxes and vice versa. The two processes may therefore be progressed concurrently. Successful prosecution of tax offenders leads to recovery of unpaid taxes, penalties and interest owed to the government.
Taxpayers who have objections on KRA’s tax assessments and/or penalties are encouraged to use Alternative Tax Dispute Resolution Mechanisms.
Meanwhile, KRA remains alert to ensure that any form of tax evasion is detected, disrupted and deterred through intelligence-led and prosecution guided investigation that will see the perpetrators face legal sanctions through the criminal justice system.
The writer is the Deputy Commissioner for Prosecution & Enforcement in the Investigation & Enforcement Department at Kenya Revenue Authority.
