This archive report was first published on 13 August 2019.
Filing Nil Returns: What Kenyans Need to Know ¶
As the season for filing annual returns for individuals and organisations with December year-ends came to an end on June 30, 2019, many Kenyans found themselves in a rush to beat the deadline. Despite having six months to file their tax returns, many individuals and companies waited until the last minute to submit their returns, jamming the iTax portal in the process.
According to the Kenya Revenue Authority (KRA), out of the over nine million formally registered taxpayers, only 3.5 million filed their 2018 returns. This has raised concerns about the number of individuals and companies that are not filing their tax returns, despite the late filing penalty being set at Sh20,000 for companies and Sh2,000 for individuals.
As a result, the KRA has suspended the filing of nil returns to prevent tax evasion and ensure compliance with tax laws. Nil returns are filed by individuals and companies that have not received any income during the year or whose income falls below the taxable income bracket in Kenya.
However, filing a nil return can raise issues that individuals and companies need to prepare to deal with. For instance, the KRA will embark on a verification exercise to confirm that the taxpayer did not receive any income as claimed in the return. This can be an uphill task, especially with the use of data analytics by the KRA to compare the taxpayer's return against their transactions with third parties.
Recently, the KRA unveiled the use of the Tax Invoice Management System (TIMS) to tame tax cheats. TIMS is an Information Technology integration of the taxpayer's systems with the KRA's iTax system to monitor the generation of tax invoices by businesses. This makes it difficult for businesses to file nil returns at the end of the year unless there is a plausible explanation.
Furthermore, tax clearance is fast becoming an effective way of catching and deterring tax cheats. Proof of compliance with tax by providing a Tax Compliance Certificate is becoming more common especially when trading with government, responding to tender requisitions, clearance for political office and clearance for employment.
Therefore, what remedies exist for taxpayers who filed nil returns yet this is not the actual state of affairs? Under law, they can file an amended return declaring the correct state of affairs. The amended return has to be approved by KRA, and they may request for additional information in order to confirm the amendment.
Once the nil return is processed, KRA may issue an assessment where they disagree that the taxpayer did not have any income. In this case, the taxpayer needs to respond to the authority demonstrating their grounds for filing a nil return. Many taxpayers are now receiving assessments on iTax based on their filings for the year 2018.
Before you hit that nil button, stop and consider the implications of such a filing. It is essential to understand the tax laws and regulations to avoid any penalties or fines.
File nil returns: The writer is a senior advisor at Andersen Tax, Kenya.
