Individuals and firms that have been filing nil Value Added Tax (VAT) returns are in for a rough ride as the taxman moves to eliminate tax evasion.
An internal memo dated August 5, 2022, addressed to the Domestic Taxes Department (DTD) and signed by the Kenya Revenue Authority (KRA) Commissioner of Domestic Taxes Evance Nyakango indicates that a number of taxpayers with VAT obligations are either not filling their returns or consistently file nil VAT returns.
According to the memo, the commissioner attributed the huge number of nil and non-filers to erroneous VAT obligations, inactive or dormant taxpayers and closed-down companies, a situation he said poses a challenge to monitoring the taxpayers’ compliance.
“In a bid to avoid the aforementioned challenges, the department has therefore embarked on a tax register cleaning exercise including deregistration of erroneous VAT obligation and validation of new VAT entrants,” the note said adding that the move is aimed at ensuring that the department supports compliance activities.
Companies with pending VAT dues will, however, be allowed to honour their tax obligations.
“To this end, VAT taxpayers who have never submitted a VAT return or have consistently submitted nil VAT returns have been identified to mitigate the gaps noted through the use of a “VAT Special table” intervention in itax – the online portal for filing returns.
“These identified taxpayers will not be allowed to file original/amended VAT returns and their PINs will not be accepted for VAT input claims by other Taxpayers. However, they will be permitted to settle any pending VAT liabilities,” Mr Nyakango explained.
Besides Kenya increasing its tax revenue target for the fiscal year ending June to Kes1.74 trillion from an earlier Kes1.71 trillion goal, data from the KRA shows that nine in 10 companies operating in Kenya did not pay taxes in the fiscal year under review.
Further, 84,428 out of the 759,164 companies registered for corporation tax paid their dues for the year ended June 2022, reflecting a compliance rate of 11.12 percent.
This, according to the taxman, signaled that either many companies could be reporting losses as a tax avoidance strategy, or there are many dormant companies, mainly start-ups registered in recent years with the target of supplying the national government, county governments, and State-owned enterprises with goods and services.
However, Pay as You Earn (PAYE) receipts for the fiscal year ended June 30 hit Kes461.8 billion against a target of Kes455.1 billion on the back of the gradual recovery of the job market, while domestic VAT collections were up by 24 percent to Kes244.7 billion on enhanced compliance efforts by KRA and the recovery of the economy which boosted purchasing power.