This week saw many Kenyans express an outrage at the International Monetary Fund’s (IMF) approval to extend a loan facility to the Kenyan government. This was a clear sign that there is an authentic fear of the ever-increasing debt burden and unquestionable doubt of our ability to sustain it.
It goes without saying that taxation is a critical means for the government to raise revenue. With the ongoing Covid-19 economic shocks and to secure our debt sustainability, it is anticipated that this may heighten. Strictly speaking, we have already experienced the introduction of digital service tax and minimum tax and an increase in various taxes. It appears that higher future taxes is an inevitable consequence.
It is on the above we decided to disseminate the tax administration system in Kenya:-The Kenya Revenue Authority (KRA) is a public body created by a statute, the Kenya Revenue Authority Act, where it is mandated to collect and receive taxes on behalf of the government. Further, KRA is also authorized to administer and enforce all provisions of written tax laws in respect to assessment, collection and accounting of all revenues.
Globally, most tax administrators seek to increase tax collection and reduce the administrative costs expended therein. This is achieved by allowing taxpayers to be actively involved in the tax collection process through a system of self-assessment.
Taxation in Kenya is based on a self-assessment regime. This means that at the end of every fiscal year, we, the taxpayers are expected to: – assess their individual or business incomes, declare the said incomes, deduct the allowable expenses, if any, incurred in generating those incomes and paythe applicable tax liability on the net income. Hence why we file returns on i-tax by end of every June.
The involvement of the public in tax compliance allows the citizen to view the process as fair and honest .Further, it allows for certainty, a key cannon of taxation, on the tax payable. It is widely accepted that taxpayers are the best persons to determine their tax liabilities with certainty as they know their business models and accounting records best.
In addition to, the above system allows the tax officials to concentrate on other areas such as post filing verification, enforcement measures and prosecution of tax evaders.
Traditionally, tax was mainly assessed by the tax administrators who would examine the tax returns and financial statements and calculate the amount payable. This required quite a high level of intervention of tax officials and incur higher administrative costs in tax collection. To date, some countries still operate under this system.
However, as effective as the self-assessment system may appear, it is not one without formidable challenges. As such, to verify that a tax payer has correctly declared their income and has not siphoned profits through expenses, KRA is clothed with power to review the assessment and if there is any discrepancy, make an adjustment.
In the next article, we shall discuss in-depth of the verification processes employed to ensure that the returns filed provide an accurate tax position.
How can we help?
The Tax team remains at your disposal should you require any further information in this respect.
Disclaimer:-
This material has been prepared for general informational and educational purposes only and is not intended, to constitute legal advice, tax or other professional advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Please refer to your advisors for specific advice.
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