Tax Audit Triggers – Understanding Taxation Part 1
By Winfrey Kay – Finance and Economic Expert
We all know Kenya doesn’t have much of natural endowments (gold, copper, oil, diamonds) to boost her economy. The upside of this is that it makes the country’s economy very versatile and adapt very quickly, but the downside is that taxation becomes a huge Revenue Source for the country. Heavy reliance on tax means every citizen ought to have an understanding of the various tax regimes in the country, and for this reason each week I will be shairing taxation tips including but not limited to VAT, Corporate Tax, PAYE, With-Holding Tax, Advance tax , Installment Tax, Rental income Tax, Capital Gain Tax, Agency Revenue Tax & Turnover Tax. These tax tips will come in handy for starting new businesses no matter the size; be they legal businesses, SMEs, Cooperates or even individuals.
Yes, our tax bands are very many, and if we were to analyze keenly there are instances of double levying. In fact, Kenyans are ranked the 3rd most taxed citizens in Africa , and that’s according to a report by the Organisation for Economic Co-operation and Development (OECD) titled “Secretary General’s Report to Ministers 2018.”
The many tax bands in Kenya suggests you probably do not comply with all the tax requirements, and as such you are likely going to invite the tax man to audit your tax affairs. The tax man usually doesn’t visit business premises at random, but does so under certain Tax Audit Triggers. The following actions/inactions are thus likely going to invite the tax man to your premise, hence it is very important to take note:
A constant/regular VAT credit will draw the eye of KRA to your business unless of course you are dealing with zero rated supplies.
Discrepancies between Sales declared under VAT and Sales declared under income tax for a particular financial period. Note that KRA officers are keen to details and any variance will land you their courtesy visit. Also, variances arising from salaries claimed for Income tax purposes and salaries declared for PAYE purposes. Any thoughts of you being a clever fellow will land you straight to them.
Constantly filling NIL Tax returns especially for businesses ( remember nil returns are strictly meant for person’s without any transactions)
Publicity in the media can also trigger an underground tax investigation
And of course, KRA base expansion with intelligent units on board to gather and profile business. Nowadays they have undercover agents stationed across the country
A disgruntled (angry) employee or business partner or a ‘frenemy’ can report your Tax evasion mannerisms.
