Tax Alert

Tax Amnesty for tax obligations up to 31 December 2022

The Voluntary Tax Disclosure Program (VTDP) which was introduced vide the Finance Act of 2020 which took effect from 1 January 2021 and was applicable for a period of three years, up to 31 December 2023 is nearly coming to an end. The Finance Act 2023 through amendment of the Tax Procedures Act, 2015 (the TPA) has introduced yet another tax relief program (the Amnesty).

The VTDP gave taxpayers an opportunity to voluntarily disclose unpaid tax liabilities accrued for the five-year period prior to 1 July 2020 (“unpaid tax liabilities”) and enjoy full or partial waiver of penalties in a graduated manner depending in the year of income the taxpayer made the disclosure to the Kenya Revenue Authority (KRA[W1] ).

The Finance Act 2023 amended section 37E of the TPA, to provide relief to taxpayers with respect to penalties or interest on tax debt where a person had paid all the principal tax due before the 31^st December, 2022 with effect from 1 September 2023.

In the same light, the Finance Act 2023 further repealed Section 89 (6) (7) and (8) of the TPA that provided the Commissioner of Domestic Taxes (the Commissioner) powers to allow for remission of penalties and interest on application by the taxpayer. The Commissioner on its own motion or through approval from the Cabinet Secretary for the National Assembly would remit in part or in whole penalties and interest payable by the taxpayer. With the repeal of this section, neither the Commissioner nor the Cabinet Secretary for the National Treasury is authorized to waive penalties and interest.

In the absence of waiver mechanisms under the TPA, this Amnesty program is therefore beneficial to taxpayers with tax arrears that would be seeking waiver of penalties and interest from the accrued tax liabilities. In this Tax Alert, we summarise the operation of the Amnesty introduced from 1^st September 2023.  

Period of the Amnesty

The Amnesty shall be in place for the period between 1 September 2023 – 30 June 2024 and shall relate to tax obligations accrued up to 31^st December 2022.

Taxes applicable under the Amnesty program

The Amnesty shall apply to all tax obligations provided under tax laws covered in the Tax Procedures Act. Relief under the Amnesty shall cover penalties and interest arising from the following tax laws;

• Income Tax Act;
• Value Added Tax Act;
• Excise Duty Act; and
• Miscellaneous Fees and Levies Act.

Eligibility and operation of the Amnesty

Relief under the Amnesty applies to:  

1. Taxpayers with penalties and interest but has no principal taxes owing for periods up to 31^st December 2022. The amnesty under this category shall be automatic and taxpayers will not be required to apply.
2. Taxpayers who have accrued principal tax up to 31^st December 2022 but pay the outstanding principal tax debt by 30^th June 2024.

Relief of penalties and interest under the Amnesty shall be granted to taxpayers when:

1. The taxpayer with outstanding principal tax debts applies for the Amnesty. The application for the Amnesty shall be accompanied by a payment plan proposal for the outstanding principal taxes.
2. The taxpayer has settled all the outstanding principal taxes not later than the 30^th June 2024 relating to tax obligations accrued up to 31^st December 2022.
3. The taxpayer does not incur a further tax debt.
4. The taxpayer signs a commitment letter for the settlement of all outstanding taxes that the person may owe.
5. All taxpayers with self-assessments or amended assessments relating to any period up to 31st December 2022 but raised after 31st December 2022 shall qualify, as long as the outstanding principal taxes raised in the assessments are paid before 30th June 2024.
6. All taxpayers with tax liabilities that are under any dispute process will qualify for the amnesty as long as they meet the conditions of the amnesty.

Exclusion from relief under the Amnesty Program

The following shall be excluded from enjoying waiver of penalties and interest under the Amnesty Program:

1. Persons with outstanding tax obligations after 31^st December 2022
2. Penalties and interest arising from principal tax relating to periods up to 31st December 2022 which remains unsettled by 30^th June 2024
3. Tax Avoidance penalties imposed by the Commissioner under section 85 of the Tax Procedures Act
4. Penalties and interest arising from the operation of the East Africa Community Customs Management Act (EACCMA).

Additional clarification on the Amnesty Program 

We note that Section 37E of the TPA does not provide very clear guidelines as to administration of the Amnesty. The KRA has endeavored to provide further clarity on the operation of the Amnesty has published further guidelines regarding the Amnesty which we summarise as follows:

Issue	Guideline
Process of Amnesty application	An Amnesty application shall be made online through the taxpayer’s  iTax. The system shall display the taxpayer’s debt status with all tax heads. The taxpayer will be required to apply for the amnesty by selecting the periods and tax heads which qualify for the Amnesty.
Payment of taxes due	The taxpayer may make full payment of the principal tax due or enter into a payment plan agreement with the Commissioner. The taxpayer who opts to settle the outstanding principal tax in installments shall indicate the frequency of payments in the system embedded payment plan agreement. The payment plan agreement shall not extend beyond 30th June 2024.
Tax liabilities arising from ongoing tax disputes	Taxpayers with tax liabilities for periods up to 31st December 2022 which are under a dispute process may engage the Commissioner for the settlement of the disputes and agree on a payment plan for the agreed amounts will qualify for the Amnesty, subject to fulfilling the conditions under the Amnesty program.
Tax liabilities arising from return amendment, reconciliation or with other pending system issues	Taxpayers must first liaise with their respective TSOs to conclude the process. They shall then pay the outstanding principal taxes before the amnesty is granted.
Granting of the Amnesty	Amnesty shall be granted upon the payment of the final instalment as committed in the payment plan agreement.

We caution that the above guidelines should be applied as general guidelines from the KRA and should not be relied upon as the Law.

Next Steps

With the repeal of the previously existing waiver provisions under the TPA, taxpayers should take advantage of the Amnesty that is expected to run slightly over a year. Taxpayers should proactively review their compliance status with an intention of establishing any areas of non-compliance and consider taking advantage of the newly introduced Amnesty program.

Our team of tax lawyers are available to assist you in carrying out a comprehensive tax review check to assess your compliance status and thereafter propose ways of dealing with the identified exposures.

Should you wish to discuss this further, please contact our team below for further guidance and assistance.

*The information contained in this Tax Alert is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice. Kindly seek specific legal advice applicable to your circumstances *.