MPs plan to reduce late tax penalty from 20pc to 5pc

Individuals and companies that fail to pay tax on time will get a relief if MPs approve proposals to cut the late payment penalty from the current 20 per cent to five per cent of money owed to the Kenya Revenue Authority (KRA).

The Finance and National Planning Committee wants to amend the Tax Procedures Act, 2015, to cut penalties levied on taxpayers who file returns beyond the June 30 deadline.

The committee has proposed further changes to the Finance Bill 2018, which will be tabled for scrutiny and final approval this week.

“That clause 45 of the Bill be amended in the proposed section 83A by deleting the word “twenty” and substituting therefor the word 'five'," the committee chaired by Joseph Limo said in a report on the Finance Bill 2018.

The taxman demands that pay as you earn (PAYE) deductions be made by 9th of every month and withholding VAT should be paid every Monday.

The due date for VAT remittance, excise duty, withholding tax, aviation fees and Standards levy is on the 20th of each month.

Timely payment

Timely payment is critical in an economy where taxes have trailed targets amid rising expenditure, prompting the government to borrow heavily.

Then taxman prefers the heavy penalties to push for compliance.

KRA collected Sh1.48 trillion or an average Sh123.93 billion a month in the year ending June 2018 against a target of Sh1.65 trillion.

Kenya has been criticised for failure to cut borrowing in the recent past.

The funds went to run a range of ambitious infrastructure projects including a modern railway line from Mombasa to Nairobi.

President Uhuru Kenyatta’s government has borrowed from international capital markets since 2013 to build roads, bridges and power plants as well as the railway.

Public debt

This has driven up public debt to more than 50 per cent of GDP, from 42 per cent in 2013, raising concern that heavy borrowing was undermining Kenya’s growth.

In May 2017 the taxman raised the fine for late filing of returns 20 times.

The penalties were enacted under the Tax Procedures Act number 29 of 2015 but KRA had previously not implemented them.

The KRA has been collaborating with employers and membership-based professional bodies to assist employees file returns.