Review tax Bill to extend the base period for amnesty to December 2023

A key proposal in the Tax Procedures (Amendment) Bill 2024 is to have the 2023/24 tax amnesty programme extended to June 30, 2025.

The proposed extension of the amnesty is indeed a welcome proposal which will give many taxpayers the much-needed window to regularise their books with the Kenya Revenue Authority (KRA) and bolster tax compliance across the country.

However, there is need for debate as to whether the extension as proposed in the Tax Procedures (Amendment) Bill 2024 needs rethink to yield optimal outcomes for both the taxpayers from a compliance perspective and the government in its revenue raising agenda.

Eligibility for the amnesty programme if extended as proposed in the Tax Procedures (Amendment) Bill 2024 will be limited to persons who either have penalties and interest but no principal tax arrears for periods up to December 31, 2022, or to those who had principal tax arrears up to December 31, 2022, but settled the same by June 30, 2024.

I believe there is a case for revision of the base period to December 31, 2023, as opposed to the December 31, 2022, that was prescribed by Finance Act 2023.

The KRA on August 1 issued an important public notice with regard to the migration of Value Added Tax (VAT) and Income Tax ledger balances from the legacy system to iTax.

Through this notice, the taxman announced taxpayers had until December 31, 2024, to raise any concerns they may have with their balances migrated to iTax.

Prior to iTax, there was the Integrated Tax Management System popularly known as iTMS , which had been in place since 2009.

Through iTMS, taxpayers were able to pay taxes directly to the authority’s appointed banks via RTGS but still suffered the drawback of semi-automated posting of the tax payments onto respective taxpayers’ ledgers.

The transition from iTMS to iTax has, however, been far from seamless with the elephant in the room being the migration of balances from the old/legacy system to iTax and the accuracy of the data being captured by the authority which results in demand letters.

This is why the balances being migrated to iTax are subject to revalidation by both the taxpayer and KRA subject to evidence furnished through additional information and it is on this basis that KRA has given taxpayers until December 31st, 2024, to raise any concerns based on the migrated balances.

It goes without saying that we are bound to see taxpayers raise issues with KRA regarding the migration and clean-up of their ledger balances from the legacy system to iTax.

Some of these issues raised will certainly be dated, going back as far as a decade or two, others will be fairly recent, including covering tax matters for 2023.

Based on this reality and the inevitability of periodic instances where ledger balances migrated will have errors and/or omissions, it may be worthwhile to consider extending the base period for the amnesty under the Tax Procedures (Amendment) Bill 2024 to December 31, 2023, from the proposed December 31, 2022.

Another reason for revising the base period to December 31, 2023, is the manner in which the financial year 2023/24 started and the uncertainty that dominated the enforcement of tax laws in the period between July 1st and December 31st, 2023.

Consider the case of the Housing Levy and the uncertainty as to whether board directors should be deemed employees and therefore subjected to the levy in their compensation.

In a response to a query from Kenyatta National Hospital dated September 13th, KRA advised that directors are indeed employees and therefore should have the Housing Levy deductions made on their compensation.

This position would be overturned by the Attorney General via guidance issued on September 22nd which leaned on two judgements - Republic vs Commissioner for Domestic Taxes (Large Taxpayers Office) Ex Parte Barclays Bank of Kenya (2015) and Commissioner for Domestic Taxes vs Unga Ltd (2021).

Such incidents will most likely create a need for clean up on tax assessments related to 2023 and as we head for public participation on the Tax Procedures (Amendment) Bill 2024, it is my hope that consideration for revision of the base period will be made.

The writer is a business journalist and host on 'Business Redefined' show on NTV