This archive report was first published on 3 December 2019.
Automated Audits: A Double-Edged Sword for Taxpayers ¶
On November 15, 2019, the Kenya Revenue Authority (KRA) issued VAT Automated Assessments to taxpayers, citing inconsistencies in data captured by the VAT Automated Audit (VAA) module. The assessments, which covered the period January 2018 to May 2018, were based on the module's reconciliation of input tax claimed by purchasers with output tax declared by sellers.
However, taxpayers have raised concerns about the accuracy of the assessments, citing human error and technical issues in the data capture process. According to the KRA-approved guidelines on VAA assessments, taxpayers who are not in agreement with the assessment can object through the iTax objection application. If the objection is approved, a Credit Adjustment Voucher (CAV) will be issued, reversing the assessment.
But taxpayers who fail to object within 30 days risk having the debt automatically referred to the debt department for collection. Moreover, the KRA has forced taxpayers with VAT credits to declare Debit Adjustment Vouchers (DAVs) while filing the October VAT returns, effectively reducing their VAT credit by the amount assessed.
As a result, taxpayers are left with a difficult task of trying to decipher and reconcile the various inconsistencies leading up to the overall assessment. The process has been marred by technical hitches in uploading amended returns, insufficient response time, and other hurdles.
According to the KRA, the VAT Automated Audit module was introduced in October 2018 as a way of curbing fraud, recovering revenue, and increasing Value Added Tax (VAT) compliance. The module seeks to reconcile input tax claimed by purchasers with output tax declared by sellers, but its accuracy has been questioned by taxpayers.
As the KRA continues to implement the VAT Automated Audit module, taxpayers must be aware of their rights and obligations under the tax law. By understanding the process and the potential pitfalls, taxpayers can minimize the risk of losing input VAT in automated audits.
