Tax Amnesty

The Tax Procedures (Amendment) Act, 2024 has introduced a tax amnesty on interest, penalties or fines on tax debt for periods up to 31st December, 2023. The amnesty period is set to run from 27th December 2024 up to 30th June 2025. This program offers tax payers an opportunity to resolve any compliance issues with minimal financial penalties. The government also seeks to encourage individuals and businesses to regularize and streamline their tax affairs while boosting its revenue. 

The Kenya Revenue Authority has set out to implement the amnesty program to allow taxpayers to disclose previously undeclared income or unpaid taxes without facing the usual penalties, fines & interests. Therefore, the taxpayer is only required to settle the principal tax liability due, without any penalties and interests being charged. 

Implementation Procedure 

The tax amnesty shall be implemented as follows: 

1. A person who has paid all the principal taxes that were due by 31st December, 2023 will be entitled to automatic waiver of the penalties and interest related to that period and will not be required to make an amnesty application. 
2. A person who has not paid all the principal taxes accrued up to 31st December, 2023 and is unable to make a one-off payment for the outstanding principal taxes will be required to apply to the Commissioner for the amnesty and propose a payment plan for any outstanding principal taxes, which should be paid by 30th June 2025. 

Key provisions of the amnesty period include: 

• Eligibility – Taxpayers with outstanding liabilities from prior years up to December 2023 
• Scope – Income Tax, VAT, Withholding taxes 
• Benefits – Full waiver of penalties and interest accrued 
• Deadline – Taxpayers must apply and settle their dues by 30th June 2025 

Key Goals of the Amnesty Program 

1. Boosting Compliance – Many individuals and companies often fall behind on compliance due to many issues such as information gaps and cashflow issues  
2. Increasing Revenue Collection – With a growing fiscal deficit, the government needs immediate inflows and the program will in effect widen the tax base with increased compliance 
3. Building a stronger tax culture – The government seeks to offer a clean slate for individuals and companies alike and in effect encourage long-term compliance and trust between taxpayers and KRA 

Benefits of the Amnesty Program 

The amnesty program offers benefits for both taxpayers and the government. 

For Taxpayers 

• An opportunity to settle outstanding liabilities without incurring punitive penalties 
• Relief from the financial burden of accrued interests. The taxpayers may request for a payment plan in case they are unable to settle their principal liabilities upfront 
• Avoidance of legal action or enforcement of agency notices  

For Government 

• Short term increase in revenue to support fiscal priorities 
• Improved taxpayer databases for better monitoring and planning 
• Pathway to engage with the informal sector which has historically been notorious for tax evasion 

Potential Challenges and Criticisms  

While the amnesty program has its merits, it is not without criticisms or controversies. Critics argue that 

1. Fairness is compromised: Compliant taxpayers may feel aggrieved for fulfilling their obligations on time while defaulters are rewarded with waivers 
2. Risk of repeat offenders: Amnesties can create a precedence, encouraging taxpayers to delay payments in anticipation of future amnesties 
3. Operational challenges: Due to its time bound nature, the program needs robust systems and processes to ensure transparency and accountability. 

Kenya has implemented similar amnesties in the past with mixed results. For example, the 2020 amnesty program particularly targeting landlords helped identify undeclared rental income and widen the tax base. It however was criticized for its weak enforcement. The 2023/2024 amnesty was lauded for its effectiveness in roping in more tax payers and offering an olive branch for taxpayers who had been burdened by non-compliance. 

How we can assist  

At CM Advocates LLP, our tax team is on standby to assist taxpayers apply for the waiver in light of the ongoing amnesty. Reach out to us today to avoid getting caught up by the impeding deadline and to save a coin. Please reach out to Wanjiku Kiguatha at wkiguatha@cmadvocates.com