PUBLIC NOTICES 01/09/2023 Tax Amnesty on Interest and Penalties for periods up to 31st December 2022

The Kenya Revenue Authority (KRA) launched a significant tax amnesty program on September 1, 2023, targeting the remission of penalties and interest on tax debts accrued up to December 31, 2022. This initiative, enacted under Section 37E of the Tax Procedures Act, 2015, as introduced by the Finance Act 2023, aimed to enhance tax compliance and ease the burden on taxpayers. The amnesty provided an automatic waiver for those who had settled their principal tax by the specified date and required an application and payment plan for those with outstanding principal tax, to be cleared by June 30, 2024. Subsequently, the Tax Procedures (Amendment) Act, 2024, extended the scope to cover penalties and interest up to December 31, 2023, with a new deadline of June 30, 2025, offering a broader window for taxpayers to regularize their affairs.

The Kenya Revenue Authority (KRA) issued a pivotal Public Notice on September 1, 2023, announcing a comprehensive tax amnesty program on interest and penalties for tax periods up to December 31, 2022. This move, rooted in the Finance Act 2023, marked a significant policy shift aimed at fostering a culture of voluntary compliance and providing relief to taxpayers burdened by accumulated penalties and interest. The amnesty sought to encourage taxpayers to regularize their tax positions without the punitive financial consequences typically associated with historical non-compliance.

This initiative is particularly crucial for legal practitioners advising clients on tax matters, as it presented a limited-time opportunity to mitigate substantial tax liabilities. Understanding the nuances of this amnesty, including its scope, eligibility criteria, and procedural requirements, was paramount for effective client counsel. The program underscored the government's dual objectives: to boost revenue collection by bringing more taxpayers into the compliance fold and to offer a clean slate for those willing to settle their principal tax obligations.

This article delves into the specifics of the KRA tax amnesty, examining its legal framework, practical implications, and the subsequent extensions that broadened its reach. It aims to provide legal professionals with a structured understanding of this critical tax development, distinguishing it from other KRA compliance programs and highlighting key considerations for advising clients.

The legal framework for tax administration in Kenya is primarily governed by the Tax Procedures Act, 2015, which consolidates and harmonizes the procedural aspects of various tax statutes, including the Income Tax Act (Cap 470), the Value Added Tax Act (Cap 476), and the Excise Duty Act. These Acts outline the obligations of taxpayers, the powers of the Commissioner, and the penalties and interest applicable for non-compliance. Historically, the KRA has imposed various penalties for late filing, late payment, and other tax offences, alongside interest on unpaid taxes, which can accrue significantly over time. For instance, late payment of income tax for non-individuals attracts a penalty of 5% of the tax due and an interest of 1% per month, while late payment interest on other taxes can be 2% per month.

Prior to the Finance Act 2023, the Commissioner had powers under Section 89 of the Tax Procedures Act, 2015, to waive penalties and interest under certain circumstances. However, the Finance Act 2023 removed these general waiver powers, simultaneously introducing the specific tax amnesty program under a new Section 37E of the Tax Procedures Act, 2015. This legislative shift indicated a move towards structured, time-bound relief programs rather than discretionary waivers. The September 2023 public notice operationalized this new provision, setting the initial parameters for the amnesty.

It is important to distinguish this tax amnesty from other KRA initiatives such as the Voluntary Tax Disclosure Programme (VTDP), which was effective from January 1, 2021, to December 31, 2023. The VTDP specifically targeted previously undisclosed tax liabilities for periods up to June 30, 2020, offering a remission of penalties and interest on a sliding scale (100%, 50%, or 25%) depending on the year of disclosure. In contrast, the tax amnesty announced in September 2023 focused on existing penalties and interest on known tax debts, aiming for a full waiver upon settlement of the principal tax.

The tax amnesty, as initially announced, covered penalties and interest on tax debts for periods up to December 31, 2022, and ran from September 1, 2023, to June 30, 2024. Eligibility for the amnesty was bifurcated into two main categories. The first category comprised taxpayers who had already settled all their principal taxes due by December 31, 2022. These taxpayers were entitled to an automatic waiver of the associated penalties and interest, requiring no formal application. This automatic remission was a significant relief for compliant taxpayers who had outstanding penalty or interest charges on their ledgers.

The second category included taxpayers with outstanding principal tax for periods up to December 31, 2022. To benefit from the amnesty, these taxpayers were required to apply to the Commissioner and propose a payment plan for the outstanding principal tax, which had to be fully settled by June 30, 2024. Upon full payment of the principal, the accrued penalties and interest would be waived. The application process was facilitated through the KRA's iTax platform, or via manual submission, providing accessibility for a wide range of taxpayers.

A crucial development occurred with the enactment of the Tax Procedures (Amendment) Act, 2024, which extended the scope of the tax amnesty. This amendment broadened the coverage to include penalties, interest, and fines on unpaid taxes that accrued up to December 31, 2023, with the new deadline for payment of principal tax and application set for June 30, 2025. This extension provided an additional window for taxpayers to benefit from the program, reflecting the government's continued commitment to enhancing compliance. However, certain exclusions applied; penalties and interest arising from tax avoidance under Section 85 of the Tax Procedures Act, 2015, and those related to tax liabilities for periods after the respective amnesty cut-off dates (December 31, 2022, or December 31, 2023) were not eligible for remission. Furthermore, customs duties administered under the East Africa Community Customs Management Act (EACCMA) were explicitly excluded.

The implementation of this amnesty, particularly the automatic waiver for Category 1 taxpayers, required KRA to configure its iTax system to reflect these changes. Practitioners noted the importance of clients regularly checking their iTax ledgers to confirm the remission. For Category 2 taxpayers, adherence to the agreed payment plan was critical, as failure to comply could result in the loss of amnesty benefits. The program aimed to not only collect outstanding principal taxes but also to update taxpayer databases and encourage long-term compliance by offering a fresh start.

The KRA tax amnesty, initially launched in September 2023 and subsequently extended, represented a significant opportunity for taxpayers in Kenya to resolve historical tax compliance issues. Legal practitioners must ensure their clients are aware of the specific conditions and deadlines, particularly the extended period up to June 30, 2025, for liabilities accrued until December 31, 2023. The distinction between automatic waivers for those who had already paid principal tax and the application-based process for those with outstanding principal remains a critical point of advice.

Practitioners should guide clients through assessing their historical tax liabilities, confirming eligibility, and, where necessary, formulating and adhering to payment plans for outstanding principal taxes. It is crucial to emphasize that only penalties and interest are waived, while the principal tax must be settled. Furthermore, the exclusions, particularly concerning tax avoidance and customs duties, warrant careful consideration. With the general powers of the Commissioner to waive penalties and interest having been removed, this structured amnesty program is a unique and time-sensitive window for taxpayers to achieve full tax compliance and avoid future enforcement actions. Failure to take advantage of this program could leave taxpayers exposed to the full force of KRA's penalty and interest regime once the amnesty period lapses.