The Finance Act 2020 (the Act), which was assented to by President Uhuru Kenyatta on 30th June 2020, introduced a wide range of tax and other measures aimed at raising additional revenue for the financial year 2020/21. Among the measures introduced by the Act is the Voluntary Tax Disclosure Programme (the VTDP).
How we can help
Bowmans has a fully-fledged tax team that understands the unique tax issues that apply to each industry and is willing to support you on a wide range of matters pertaining to the VTDP. This includes undertaking a review of your tax compliance position to ascertain whether there are any tax liabilities, advising on whether the tax liabilities qualify for the VTDP, and assisting with remedying any non-compliance including lodging an application for relief on your behalf under the VTDP.
What is VTDP
The VTDP is a program designed to assist tax payers achieve tax compliance, by allowing them to voluntarily declare their historical tax liabilities to the Kenya Revenue Authority ("KRA") and settle the principal tax, while obtaining the benefit of not having to pay, under certain conditions, the resulting penalties and Interest.
Effective date of the program
The VTDP shall run for a period of three (3) years with effect from 1 January 2021 (1 January 2021 to 31 December 2023).
Who does it apply to
All taxpayers qualify for the VTDP, provided that:
- The tax liabilities were accrued by the taxpayer within a period of 5 years prior to 1 July 2020 (1 July 2015 to 1 July 2020);
- The taxpayer is not under audit or investigation and is not a party to ongoing litigation in respect of the tax liabilities or any matter relating to the tax liabilities; and
- The taxpayer has not has been notified of a pending audit or investigation by the Commissioner.
What is the benefit to the Taxpayer
Taxpayers who apply for the VTDP will qualify for relief in respect of:
- Penalties and interest; and
- Shall not be prosecuted with respect to the tax liabilities disclosed.
For the relief to apply, the tax payer will first be required to settle the principal tax liabilities, as the benefit is only available with regard to penalties and interest.
To what extent shall the penalties and interest be waived?
Tax payers who opt for the VTDP will be entitled to:
- 100% waiver, if the principal tax is disclosed and paid within the calendar year 2021;
- 50% waiver, if the principal tax is disclosed and paid within the calendar year 2022; and
- 25% waiver, if the principal tax is disclosed and paid within the calendar year 2023.
No waiver of the penalties and interest will be available if the principal tax is paid after the third year.
Taxpayers who opt to take up the VTDP are required to do so by way of application to the Commissioner in the prescribed form (in all likelihood via the iTax platform).
Provided that the taxpayer has disclosed all material facts in respect of the historical tax liabilities to the Commissioner, relief is expected to be granted and an agreement entered into with the taxpayer setting out the terms of payment of the tax liabilities and the period within which the payment shall be made (being not more than one year from the date of the agreement).
Entry into the agreement with the Commissioner constitutes a waiver by the taxpayer of their rights to seek any other remedy including the right to appeal with respect to the taxes, penalties and interest remitted by the Commissioner.
Withdrawal of the reliefs
The relief from payment of penalties and interest and prosecution shall be withdrawn by the Commissioner where:
- the Commissioner discovers that the taxpayer failed to disclose material facts in respect of the relief before the expiry of the agreement entered into with the taxpayer; or
- the taxpayer fails to meet the terms of the agreement entered into with the Commissioner.
In such instances, the Commissioner may issue an assessment in respect of the tax liabilities, penalties and interest or prosecute the taxpayer.
What you need to do
If you would like to take advantage of the VTDP, you should:
- Conduct an internal tax review to ascertain your tax status particularly for non-disclosures or incorrect reporting;
- Arising from the review, quantify the exposure and make the declaration to the KRA as soon as possible, in order to obtain the full benefit of the relief available.
SEPTEMBER 15, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.