Voluntary tax disclosure seeks to enhance tax compliance

 

The Finance Act 2020, assented into law by the President of Kenya on June  30, 2020, introduced a raft of measures aimed at increasing tax revenue, enhancing  compliance, and modernising the tax legislative framework in Kenya.

On the revenue collection front, the introduction of minimum tax and digital service tax, both operational effective January 1, 2021, is expected to boost government tax revenue by ensuring that companies operating with perennial tax losses or within the digital space, respectively, contribute their fair share to the exchequer.

Similarly, in a bid to enhance overall tax compliance in the country, the Kenya Revenue Authority (KRA) has extended a boon to non-complaint taxpayers through the introduction of the Voluntary Tax Disclosure Programme (VTDP)  effective January 1,  2021 to December 31,  2023.

The VTDP gives  taxpayers an opportunity to declare instances of non-compliance where the same occurred within a period of five years prior to  July 1,  2020 and thereafter benefit from a waiver of penalties and interest ranging from a 100 percent to a 25 percent  of accrued penalties and interest.

Where the disclosure is made within the first year of the programme, taxpayers stand to benefit from a 100 percent waiver of penalties and interest. Conversely, where the disclosure is made in the second and third year of the programme, taxpayers may benefit from a remission of 50 per cent and 25 per cent of accrued penalties and interest respectively.

However, for the disclosure to be considered favourably, all material facts to the disclosure ought to be submitted to the KRA at the point of making the disclosure. Further, all principal tax relating to the disclosure ought to be paid prior to the application for waiver of penalties and interest under the VTDP.

The above notwithstanding, there are certain instances whereby taxpayers would not be eligible for the VTDP. Specifically, where a taxpayer is under audit, investigation or is a party to ongoing litigation in respect of the tax liability or any other matter relating to the tax liability, the taxpayer is barred from taking advantage of the VTDP with regard to that specific tax liability.

Similarly, where a taxpayer has been notified of a pending audit or investigation by the Commissioner of Domestic Taxes (the Commissioner), they are not eligible to the VTDP with respect to the tax that the Commissioner intends to audit or investigate.

The introduction of the VTDP presents a significant opportunity to taxpayers who wish to normalise their tax compliance status. Therefore, taxpayers are encouraged to conduct a self-review of their tax compliance status, and where instances of non-compliance are noted, utilise the opportunity presented by the VTDP to return to compliance.

In the medium to long term, it is expected that the VTDP will positively impact the tax compliance status of taxpayers within the country, and similarly boost the revenue authority’s tax collections within the period the programme is in effect.