PROPOSED AMENDMENTS BY THE TAX PROCEDURES ACT ACCORDING TO TAX PROCEDURES (AMENDMENT) (NO. 2) BILL 2024
On 1st November 2024, the National Assembly published the Tax Procedures (Amendment) (No.2) Bill, 2024 (the “Bill”) in Kenya Gazette Supplement No. 191 (National Assembly Bills No. 46). The purpose of the Bill is to amend the Tax Procedures Act Cap 469B (the ‘‘TPA’’). A previous draft amendment to the TPA was published on 20th August 2024, which is why this Bill is labeled as (No.2).
The Bill seeks to make the following amendments to the TPA
1. Definition of Electronic Tax Invoice.
2. Extension of Tax amnesty Programme.
3. Changes to Withholding Tax Agents.
4. Offset or Refund of overpaid tax.
5. Data management and reporting system.
6. Due date for submission and payment.
7. Late Submission Penalty
8. Export Processing Zone (EPZ) Penalty for Late or Failure to Submit Tax Returns
9. Transactions for which a pin is required
1. What You Need to Know About Electronic Tax Invoices
The tax system is going digital, and businesses are now required to issue electronic tax invoices through a system set up by the tax authorities. Here’s what this means for you:
• What businesses need to do
If you’re running a business, you’ll need to issue your tax invoices electronically using the system provided by the tax authorities. You’ll also need to keep records of your stock in the same system. This is a big step towards simplifying tax processes and reducing paperwork.
• What’s included in an electronic tax invoice?
To ensure the accuracy and compliance of your electronic tax invoice, it should include the following details:
o The words "TAX INVOICE" clearly displayed.
o The name, address, and Personal Identification Number (PIN) of the supplier.
o The name, address, and Personal Identification Number (PIN) of the purchaser, if applicable.
o A serial number for the invoice, ensuring it is unique.
o The date and time when the tax invoice was issued, along with the date and time when the supply was made (if different).
o A description of the supply, including the quantity of goods or the type of services provided.
o Any discounts offered at the time of the supply.
o The consideration for the supply (i.e., the price before tax).
o The tax rate charged and the total tax amount.
o Any other prescribed information required by the tax authorities.
These features are similar to those provided for under Regulation 7 of the Tax Procedures (Electronic Tax Invoice) Regulation, 2024.
• Who has to use it?
Any business that needs to issue tax invoices – whether you’re a local business or part of an international company – will need to use this system. It’s important for ensuring accurate tracking of tax liabilities.
• What’s not included?
Some transactions don’t require an electronic tax invoice. For example, payments related to employee salaries, imports, investment allowances, interest, and airline ticketing are excluded from this requirement.
• Exemptions
If there’s a valid reason, the tax Commissioner can exempt certain businesses from using the electronic system, but this will typically be announced in the Gazette.
• Who Must Use It: Any business issuing tax invoices, including local and international companies, will need to comply with these requirements.
Source: Kenya Revenue Authority (KRA), Kenya Law, Oraro & Company Advocates
2. Tax Amnesty: A Second Chance to Settle Your Taxes
The Bill aims to reintroduce the tax amnesty program that ended on June 30, 2024. Although there was an attempt to extend the program through the Finance Bill 2024, this effort was unsuccessful due to the rejection of the Bill.
However, the government has made provisions to assist businesses in settling their outstanding tax obligations through the tax amnesty program. Here’s how it works:
• No penalties for taxes paid by December 31, 2022
If you paid all your principal taxes before December 31, 2022, you won’t face any penalties or interest on the amount. This presents a great opportunity for businesses that were able to settle their taxes on time.
• What if you missed the deadline?
If you didn’t pay by the deadline, you can still apply for the amnesty to waive the interest and penalties on any unpaid taxes. To qualify, you will need to:
o Apply for the amnesty and settle all your outstanding taxes by June 30, 2024.
o Ensure you do not incur any further tax debts.
o Sign a commitment letter to confirm your intention to clear any remaining taxes.
• What happens if you miss the June 30, 2024 deadline?
If you fail to pay by June 30, 2024, the amnesty will no longer apply, and interest and penalties will be charged on any unpaid taxes. This makes it crucial to take action before the deadline to benefit from the amnesty program.
Source: KPMG, Kepsa
3. Changes to VAT Withholding Agents
The tax authorities are also making changes to how VAT (Value Added Tax) is withheld. Now, businesses can be appointed as VAT withholding agents. Let’s break down what that means:
• What is a VAT withholding agent?
As a VAT withholding agent, a business will need to withhold 2% of the taxable value when purchasing certain taxable supplies. This amount is then sent directly to the tax authorities. Essentially, you’re acting as an intermediary to ensure that VAT is properly collected.
• Who is exempt from this?
Not all businesses will have to act as VAT withholding agents. Businesses dealing with zero-rated supplies or those that are registered manufacturers with an investment of at least three billion(3000,000,000) over the past three years are exempt from this requirement.
• What happens if you don’t comply?
If a VAT withholding agent fails to withhold the correct amount of tax or doesn’t send the amount to the authorities within five working days, they’ll be committing an offence and could face penalties.
Source: Cliff Dekker Hofmeyr
4. Offset or Refund of Overpaid Tax
The Bill proposes that If a taxpayer happens to overpay their tax under any tax law, they have the option to either use the overpaid tax to offset any outstanding tax debts or future tax obligations, or request a refund for the excess amount paid. Here’s how the process works:
• Offsetting the Overpaid Tax
If you’ve overpaid your taxes, you can apply to the Commissioner to use that excess amount to reduce any existing unpaid tax debts or to cover future tax liabilities. This can help ease your financial burden if you owe taxes in the future, as the overpaid amount will be applied directly against those outstanding debts.
• Requesting a Refund
Alternatively, if you prefer to get the overpaid tax amount back, you can apply for a refund. The refund request must be made within a specific time frame: generally, within five years from the date the tax was overpaid. However, in the case of Value Added Tax (VAT), the refund must be requested within six months of the overpayment.
Source: Kenya Law
5. Data Management and Reporting System
The Commissioner has the authority to create a system for managing data and reporting, which will handle the submission of electronic documents, including detailed transactional data related to those documents.
• Notification of Required Submissions
The Commissioner will inform, in writing, the individuals or businesses that are required to submit their electronic documents through the newly established system.
• Types of Electronic Documents
The electronic documents that need to be submitted through this system include, but are not limited to, the following types of returns:
o Payments for Goods: Electronic returns for payments made by a person in the normal course of business, where goods were exchanged for payment, and the person making the payment is not employed by the business.
o Payments for Services: Returns for payments made for services either rendered or expected to be rendered by someone not employed by the business.
o Business-Related Services: Returns for payments made for services in relation to the creation, acquisition, development, or sale of a business, or part of a business, provided by individuals who are not employed by the business.
o Royalties: Returns for periodical or lump sum payments made as part of royalty agreements.
o Other Commercial Transactions: Returns for any other commercial or financial transactions as specified by the Commissioner.
• Transactional Data
For the purposes of this system, transactional data refers to the following details:
o Names and Addresses: The names and addresses of every individual or business to whom payments were made.
o Service Payments: If the payment is for services, the amount paid should specify whether it is a commission or for expenses related to providing those services.
o Non-Money Considerations: If the payment is made in any form other than money, the details of the consideration (e.g., goods or services provided instead of money) must be included.
o Other Required Information: Any other specific details the Commissioner may require.
• Clarification on Payment Types
Payments for services also include those in the form of commissions or reimbursements for expenses related to services rendered. Additionally, payments are not limited to monetary transactions. Any valuable consideration given in place of money must be specified, and the amount of payment is required in all cases, even if it’s not in cash.
Source: KRA https://www.kra.go.ke/
6. Due date for submission and payment
If the deadline for:
(a) submitting or filing a tax return, application, notice, or any other document;
(b) making a tax payment; or
(c) taking any other action required under tax law,
falls on a Saturday, Sunday, or public holiday in Kenya, the due date will be moved to the previous business day.
Provided that if a person submits a notice of objection or tax return electronically, or makes a tax payment online, the original due date specified in the relevant tax law will still apply.
Source: Fiji National University
7. Late Submission Penalty
• Penalty for Late Tax Return Submission
A person who submits a tax return after the due date will be liable for a penalty as follows:
(a) Employment Income Returns: A penalty of 25% of the tax due or 10,000 shillings, whichever is higher, if the return is related to employment income.
(b) Turnover Tax Returns: A penalty of 1,000 shillings if the return is related to Turnover Tax.
(c) Value Added Tax (VAT) or Excise Duty Returns: A penalty of 5% of the tax payable under the return or 10,000 shillings, whichever is higher, if the return is related to VAT or excise duty.
(d) Other Cases:
(i) For a person other than an individual, a penalty of 5% of the tax payable under the return or 20,000 shillings, whichever is higher.
(ii) For an individual, a penalty of 5% of the tax payable under the return or 2,000 shillings, whichever is higher.
Note: When calculating the late submission penalty, the tax payable or due under the return will be reduced by any amounts already paid and by any withholding tax credits.
• Penalty for Late Submission of Documents (Other Than Tax Returns)
A person who fails to submit a document, other than a tax return, as required by tax law by the due date will be liable for a penalty of 1,000 shillings for each day or part of a day of default. However, the total penalty will not exceed 50,000 shillings.
• When a Person is No Longer in Default
For the purpose of subsection (2), a person is no longer in default once the document is received by the Commissioner.
Source: Oraro & Company Advocates
8. Export Processing Zone (EPZ) Penalty for Late or Failure to Submit Tax Returns
The Bill now introduces a penalty of KES 20,000 per month, or for any part of the month, for any EPZ enterprise that fails to submit their annual returns on time or submits them late. This penalty is intended to encourage better compliance among EPZ enterprises when it comes to filing their returns. The penalty is in line with the similar fines currently imposed on companies for failure to comply with filing requirements.
9. Transactions for which a pin is required.
• Registration of titles and stamping of instruments
• Approval of development plans and payment of water deposits.
• Registration of motor vehicles, transfer of motor vehicles, and licensing of motor vehicles.
• Registration of business names.
• Registration of companies.
• Underwriting of insurance policies.
• Trade licensing.
• Importation of goods and customs clearing and forwarding.
• Payment of deposits for power connections.
• All contracts for the supply of goods and services to Government Ministries and public bodies.
• Opening accounts with financial institutions and investment banks.
• Registration and renewal of membership by professional bodies and other licensing agencies.
• Registration of mobile cellular pay bill and till numbers by telecommunication operators.
• Carrying out business over the internet or an electronic network including through a digital marketplace.
• Registration of a trust.
Source: Kepsa
