Need A Tax Break? Consider Tax Reliefs, Amnesty, Waiver Or Exemptions

Concept of taxation 

While taxes are the other sure thing in life alongside death, they play a vital role in society. Taxes should not be regarded as a matter of life and death, but rather as a necessary obligation of a citizen to support the government in its quest to provide essential public services and infrastructure. Easing the tax burden is therefore crucial for a government as it encourages investment, fosters entrepreneurship and stimulates economic growth.  

To individual taxpayers, lowering taxes empowers them to retain more income which increases consumer demand and fuels economic activity while incentivizing expansion, job creation and innovation while boosting productivity and competitiveness for businesses. Therefore, a government must adopt sound fiscal policies to sustain itself and the interests of tax payers and enable it to collect sufficient revenue for public services while supporting citizens’ prosperity and the economy’s overall health. 

Tax Amnesty 

A tax amnesty is a limited-time offer by the government to a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability relating to a previous tax period, as well as freedom from legal prosecution for the liability. It is a periodic tax exercise targeted to a class of persons or activities with an aim of addressing a specific problem or achieving a specific objective like bringing previously untaxed income into the tax bracket. The percentage of waiver of penalty and interest under tax amnesty is guaranteed and is based on prescribed conditions that come with each tax amnesty opportunity.  

In our article “Tax Amnesty in Kenya; Intricacies of the Programme”, we explore the current tax amnesty program that commenced on the 1st of September 2023 to end on 30th June 2024 and discuss the nuances of the program such as eligibility, taxes covered, where and how to apply. 

Tax Waiver 

Sometimes, due to circumstances beyond their control, taxpayers fail to file their taxes on time and even totally fail to file their tax returns. In such cases, taxpayers can request for a waiver of accruing penalties and interest on the unfiled tax returns due by making an application to the Commissioner of Domestic Taxes, Kenya Revenue Authority (KRA) for a waiver which will apply solely to penalties and interest as the principal tax amount must be paid in full. Notably, penalties and interest resulting from fraud or tax evasion are not eligible for consideration in the waiver process. 

The Commissioner has the authority to grant full or partial waivers of penalty and interest based on the justification and evidence presented in the applications for waiver. As the grant of a waiver depends on the strength of the mitigating circumstances presented in the application, the supporting evidence provided should align with the specific mitigating grounds outlined in the application. The applicant’s historical compliance record also plays a role in the evaluation of the waiver application as the taxpayer must demonstrate compliance in previous timely filings and payment of taxes.  

Where a waiver application is declined or partially granted, the taxpayer is required to make payment of the amount computed. The notification issued by KRA after consideration of the waiver application will specify the amount due and the period within which to make payment.  

Where taxes are erroneously imposed, applications for removal of erroneous penalties and interest are required to be presented by the taxpayer to their respective Tax Service Office (TSO).  

Tax Reliefs 

Tax reliefs refer to government initiatives aimed at reducing the tax burden on individuals. They encompass deductions, credits, exclusions, and tax-free allowance thresholds granted in a bid to alleviate the tax liability for businesses and individuals or to assist specific groups in need. In Kenya, residents are entitled to a personal tax relief of Kshs. 2,400/= per month which is applicable against their taxable income. Additionally, tax relief is also provided in the form of insurance reliefs on premiums paid for education policies, health policies, or life insurance for resident individuals. These personal and insurance reliefs are granted on a monthly basis and are part of the tax relief system in Kenya, effectively reducing the overall tax obligation of an individual. 

Tax Exemptions 

Tax exemptions allow individuals or organizations to exclude certain types of income or transactions from taxation. These exemptions are usually granted for purposes such as supporting specific industries, providing tax relief to individuals or groups and also encouraging certain practices by tax payers such as contributions for Corporate Social Responsibility (CSR) projects. Tax exemptions in Kenya are granted for pension contributions, persons living with disability, government entities, VAT on some goods and services, special economic zones, export processing zones and not for profit organizations. Some of the organizations that are tax exempt in Kenya include charities, NGOs, trusts, religious institutions, hospitals and educational institutions. 

Conclusion 

Taxpayers must be aware of government-established relief options to effectively manage their taxes and reduce financial burdens. Regularly updating knowledge of tax laws and regulations is crucial to maximize the benefits and relief provided by the government. 

To stay informed about avenues such as tax credits, deductions, exemptions and instalment payment plans, reach out to  law@cmadvocates.com  or call us on 0716209673 and we will guide you in making informed decisions to minimize your tax liabilities.