An Introduction to Offences and Penalties Under the Tax Procedures Act, 2015


Background

The Tax Procedures Act No. 29 of 2015 (hereinafter “the Act”) was assented to by H.E. President Uhuru Kenyatta on 15th December 2015 and subsequently commenced on 19th January 2016.

It is instructive to note that the phrase “Tax Law” that shall be cited herein means:  (i) The Tax Procedures Act; (ii) the Income Tax Act, (iii) the Value Added Tax Act, (iv) the Excise Duty Act; and (v) any regulations or other subsidiary legislation made under Tax Procedures Act or the Income Tax Act, the Value Added Tax Act, and Excise Duty Act.

Most importantly, the Act sets out to harmonise and consolidate the procedural rules for the administration of tax laws in Kenya and all connected purposes. Furthermore, please note that the tax payable shall be charged pursuant to the respective Acts of Parliament i.e. Income Tax Act, the Value Added Tax Act, and Excise Duty Act and not under this Act.

To begin with, an offence is a crime, felony, misdemeanour or contravention or other breach of, or failure to comply with, any written law, for which a penalty is provided.

A penalty, on the other hand, is defined as punishment imposed on the offender usually in form of an imprisonment or a fine.

Administrative Penalties and Offences under the Act                            

The Administrative Penalties and Offences are adequately outlined in Part XII of the Act.

It is imperative to understand the following in respect to general provisions relating to administrative penalties and offences in this Act:

  • A person shall not be subject to both the imposition of a penalty and the prosecution of an offence in respect of the same act or omission in relation to a tax law.

 

  • If a person has committed an act or omission that may be liable under tax law to both imposition of penalty and prosecution of an offence, the Commissioner shall decide whether to demand for the penalty OR to prosecute the offence.

 

  • Where a person has paid penalty under tax law and the Commissioner commences prosecution, penalty shall be repaid to the said person as refund tax under Section 48 of the Act and the person shall not pay penalty, in the case of a prosecution, unless the prosecution is withdrawn.

The penalties and offences under the Act are summarised as follows:

  •  

SECTION

PARTICULARS

PENALTY

 

81

Penalties relating to registration and licensing

 

 

Failure to apply for registration

  • Kshs. 100, 000.00 for every month/or part of a month of default. The penalty imposed shall not exceed Kshs.1,000,000.00

 

 

Failure to apply for deregistration or cancellation of registration

  • Kshs. 100, 000.00 for every month/or part of the month of default. The penalty imposed shall not exceed Kshs.1,000,000.00

 

82

Penalty for failure to keep  documents

  •  

 

  • Where no tax is payable for the reporting period for the period to whichthe failure relates, the penalty shall be Kshs.100,000.00

 

83

Late submission penalty

 

 

 

Submission of a tax return after  due date

  • 25% of the tax due or Kshs.10,000.00, whichever is higher in respect to an employment income return;

 

  • Ksh.5,000.00 if it is in relation to Turnover Tax return; or

 

  • In any other case 5% of the tax payable under the return or Kshs.20,000.00 whichever is higher.

 

 

Submission of a document other than tax return after due date

  • Kshs.1000.00 for each day or part day of default. The total penalty shall not exceed Kshs.50,000.00

 

84

Tax shortfall penalty

 

 

 

Under Section 84(2)- this provision is subject to section  84(3) and (4) of the Act

Tax shortfall shall be:

 

  • 85% of the tax shortfall when thestatement wasor omission to an Authorised Officer was made deliberately; or

 

  • 20% of the short fall in any other case

 

 

Under Section 84(3)

Tax short fall penalty shall be increased by:

 

  • 10% points when this is the 2nd application of this section to that person; or

 

  • 25% points when this is a 3rd or subsequent application of this section to that person

 

 

Under Section  84 (4)

Tax shortfall penalty imposed under Section 84(2) shall be reduced by 10% when a person voluntarily discloses  to the Commissioner the statement or omission to which  the section applies prior to:

 

  • discovery by the Commissioner of the tax shortfall; or

 

  • The commencement of an audit of the tax affairs of the person to whom the statement relates.

 

85

Tax Avoidance Penalty

  • Tax avoidance penalty is equal to double the amount of the tax that would have been avoided.

 

86

Penalty for failing to comply with electronic tax system

 

  • Kshs. 100,000.00

 

87

Penalty for failure to appear before the Commissioner -pursuant a notice  issued by Commissioner under section 61 of the Act

 

  • Kshs.10,000.00 in case of an individual; and

 

  • Ksh.100,000.00 in any other case.

88

Penalty in relation to fraudulent claim for refund

  • Penalty of an amount equal to two times the amount of the claim.

 

 

Highlights of General Provisions Relating to Penalty

  • Each penalty shall be calculated separately with respect to each section in this division

 

  • A person is liable to a penalty only when the Commissioner notifies in writing that person of a demand for the penalty setting out the amount of the penalty payable and the due date for the payment being a date that is at least 30 days after the date of notification.

 

  • A person liable may apply in writing to the Commissioner for the remission of the penalty payable and such application shall include reasons for the application.

 

  • The Commissioner may upon the above application, on his own motion and with the approval of the Cabinet Secretary , remit,in whole or in part, any penalty payable by a person except a penalty imposed under section 85 of the Act.

 

  •  

The offences provided under this Act are as follows:

SECTION

NATURE OF OFFENCE

 

90

Offences relating to registration or licensing

 

91

Offences relating to PINs (Personal  Identification Numbers)

 

92

Offences by tax agents

 

93

Failure to maintain documents

 

94

Failure to submit tax return of other documents

 

95

Failure to pay tax

 

96

False or misleading statements

 

97

Fraud in relation to tax

 

98

Offences relating to recovery of tax

 

99

Offences relating to enforcement powers

 

100

Obstruction of authorised officer

 

101

Aiding or abetting an offence

 

102

Offences by officers and staff of the Authority

 

103

Offences by employees, agents , and companies

 

 

SANCTIONS FOR OFFENCES

A person convicted of any offence under the Act shall be liable as follows:          

 

OFFENCE

SANCTIONS

 

  •  

Where a person is convicted of any of the offences under  the Act (subject to a conviction of a  person  under Sections 98(1),  102(1), or 97 of the Act)

  • Fine not exceeding Ksh.1,000,000.00; or
  • Imprisonment for a term not exceeding 3 years; or
  •  

 

  •  

Where a person is convicted of an offence under Sections 98 (1) or 102(1) of the Act

  • Fine not exceeding Kshs.2,000,000.00; or
  • Imprisonment for a term not exceeding 5 years; or
  • Both

 

  •  

Where a person is convicted of an offence under  Section 97  of the Act

  • Fine not exceeding Kshs.10,000,000.00 or double tax evaded, whichever is higher; or
  • Imprisonment for a term not exceeding 10 years, or
  • Both

 

  •  

Where a person is convicted  of an offence under Section 92 of the Act

  • Fine not exceeding Kshs.5,000,000.00 of double tax evaded, whichever is higher; or
  • Imprisonment for a term not exceeding5 years, or
  • Both

 

 

Other important notes:

  • Where a person is convicted of an offence under a tax law and of which taxes were not paid, the Court may order the convicted person to pay the whole or such part that remains unpaid, either in addition to, or in substitution of any other penalty.

 

  • A person charged with an offence under a tax law may be prosecuted any place in Kenya. Notably, an offence under this Act shall be tried in the Court designated to try offences of corruption or economic crimes.

 

  • Outstanding tax or late payment of interest due and payable shall be paid by the tax payer despite his/her prosecution.

 

CONCLUSION:

This treatise is hardly the content that is intended to make the reader a tax expert – it is as the title says a basic introduction to the penalties and offences under the Tax Procedures Act.

As is common with many other countries globally, tax law in Kenya is complex and increasingly becoming so despite best efforts to simplify it – perhaps the best advice that can ever be given to tax-payers is to maintain a conservative stance with respect to tax issues and where there is a query seek professional advice at the earliest point where doubt sets in – this after all is tax law!

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Section 3 of the Act

The meaning as set out under  Section 3 of the Interpretation and General Provisions Act, Chapter 2 Laws of Kenya.

Black’s Law Dictionary, 8th Edition

Section 80 of the Act

Commissioner-General appointed under the Kenya Revenue Authority Act

Document under section 3 of the Act includes a book of account, record, paper, register, bank statement, receipt, invoice, voucher, contract or agreement, tax return, Customs declaration, tax invoice or any information or data stored on a mechanical or electronic data storage device.

Tax avoidance means a transaction or scheme designed to avoid liability to pay tax under tax law. Previously this was not punishable however it was noted that there was colossal revenue leakage that necessitated the above provision  in this Act.

Where the Commissioner is satisfied that a person has committed an offence under a tax law, the Commissioner may, by notice in writing, require the person to appear before him.

See full provisions of section 89 of the Act

Cancellation of a penalty

Kenya Revenue Authority

Section 104 of the Act

Section 105 of the Act

Section 106 of the Act

Section 108 of the Act


Disclaimer: This article has been prepared for informational purposes only and is not legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Nothing on this article is intended to guaranty, warranty, or predict the outcome of a particular case and should not be construed as such a guaranty, warranty, or prediction. The authors are not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information. Readers should take specific advice from a qualified professional when dealing with specific situations.





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