7.1 Introduction

In the previous chapter we covered tax systems and policies in Kenya. In this topic we shall 

lay emphasis on professional ethics in taxation. Tax systems are the background of a country’s 

revenue collection basis. The chapter will assist the student understand the various types of tax 

systems and be able to recommend a viable tax system based on International best practices. In 

the next chapter we shall study professional ethics in taxation.

7.2 Objectives

The objective of this topic is to equip the student with ethical principles that will assist them 

in their work place. The chapter discusses the form of tax practice and matters relating to the 

accountant’s obligations to their clients and how to handle client work. The chapter discusses the 

various ethical regulations by the applicable accountancy bodies that go a long way in assisting 

the accountants at work. After this chapter the students should have understood the following 

concepts:

• Form of tax practice and matters relating thereto Obligations to clients 

• Confidentiality 

• Matters relating to new clients 

• Handling of client work 

• Charging for services 

• Matters giving rise to conflict of interest 

• Disclosures in tax returns, computations and correspondence with the Revenue 

Authority 

• Dealing with the Revenue Authority 

• Moral and social issues in taxation 

7.3 Exam Context 

This is a new topic introduced during the review of the syllabus. Questions in this topic are likely to 

be both theoretical and practical in nature. The examiner could test on candidates’ understanding 

of the practical ethical issues at the work place as a tax consultant. 

7.4 Industrial Context

This chapter will enable accountants and tax consultants acquire skills on how to manage their 

tax practices, how to manage client work and charging for services. Further, they will understand 

the ethical issues affecting their businesses and how to deal with the ever aggressive revenue 

authority. There is an increasing focus in the industry on adherence to the professional ethical 

standards hence the need for the importance of this topic.

7.5 Key Definitions

Ethics- Ethics may be defined as the science of the moral rectitude of human acts in accordance 

with the first principles of natural reason. It is the moral standards by which people judge 

behaviour. 

Integrity- Is defined as:

• the quality or state of being complete; unbroken condition; wholeness; entirety 

• the quality or state of being unimpaired; perfect condition; soundness 

• the quality or state of being of sound moral principle; uprightness, honesty, and 

sincerity

7.6 Regulation

The Institute of Certified Public Accountants (ICPAK), like any other professional body, requires 

its members to observe the highest professional standards in all aspects of their work. This 

chapter discusses how these standards can be maintained, with particular reference to taxation. 

Members are also required to comply with statutory and regulatory requirements imposed by the 

government.

ICPAK publishes a Code of Ethics and Conduct covering the standards and ethical requirements 

which they expect. It details the fundamental principles and sets out a framework for applying 

those principles. Members must apply this framework to particular situations to identify instances 

where compliance with the ethical standards may be compromised so that safeguards may be 

put in place to avoid threats, or to reduce them to below the minimum level that can be regarded 

as acceptable.

Normally a member's responsibility will be to a client, or to an employer, but there may be 

instances where a member may need to act in the public interest.

7.7 Fundamental principles of Ethics

The fundamental principles that govern the ethical issues should be well observed by ICPAK 

members as well as students. These include: 

Integrity: 

Requires all members to be straightforward and honest in professional and business relationships. 

A member should not be associated with information if he believes that the information contains 

a materially false or misleading statement, statements or information furnished recklessly, or 

omits or obscures information required to be included where such omission or obscurity would 

be misleading.

Objectivity: 

Imposes an obligation on members not to compromise their professional or business judgement 

because of bias, conflict of interest or the undue influence of others. Relationships that bias or 

unduly influence the professional judgment of the member should be avoided.

Professional competence and due care: 

Requires members to maintain professional knowledge and skill at the level required to ensure 

that clients or employers receive competent professional service based on current developments 

in practice, legislation and techniques; and act diligently in accordance with applicable technical 

and professional standards when providing professional services

Any limitations relating to the service being provided must be made clear to clients and other 

users to ensure that misinterpretation of facts or opinions does not take place.

Confidentiality

It imposes an obligation on members to refrain from: 

7.7.1 Disclosing outside the firm confidential information acquired as a result of professional 

and business relationships without proper and specific authority or unless there is a 

legal or professional right or duty to disclose; and

7.7.23 Using confidential information acquired as a result of professional and business 

relationships to their personal advantage or the advantage of third parties

A member should consider the need to maintain confidentiality of information within the firm. A 

member should also maintain confidentiality of information disclosed by a prospective client or 

employer

The need to maintain confidentiality continues even after the end of relationships between a 

member and a client or employer. When a member changes employment or acquires a new 

client, the member is entitled to use prior experience, but not confidential information obtained 

from the previous relationship

Professional behaviour

Imposes an obligation on a member to comply with relevant laws and regulations and avoid any 

action that may bring discredit to the profession.

This includes actions which a reasonable and informed third party, having knowledge of all 

relevant information, would conclude negatively affects the good reputation of the profession.

Members should be honest and truthful and should not

i. Make exaggerated claims for the services they are able to offer, the qualifications they 

possess, or experience they have gained

ii. Make disparaging references or unsubstantiated comparisons to the work of others.

7.7 Form of tax practice and matters relating thereto 

In Kenya, to form a tax practice, one has to have the requisite qualifications. It can be a company 

or a partnership. In most cases, firms that offer tax services also offer audit services under a 

partnership.

Once the firm has been set up, the firm will hire qualified personnel and proceed with business. 

The firm will take up clients in a professional way. 

7.8 Obligations to clients 

It is advisable that the tax practice enters into a written contract with clients that provide specific 

duties and rights under the contract. Some of the obligations that tax practices have to clients 

include:

• Agents for all tax matters

• Agent for tax compliance matters

• Agent for corporate tax matters

The firm should ensure that it meets its part of the bargain to avoid misunderstanding and 

unnecessary litigation.

7.9 Confidentiality

Confidentiality as a principle does not only affect the members in provision of tax services. It also 

affects the tax officers. The Income Tax Act provides that:

An officer and any other person in carrying out the provisions of this Act shall regard and deal with 

all documents and information relating to the income of a person and all confidential instructions 

in respect of the administration of the Income Tax Department which may come into possession 

or to his knowledge in the course of his duties as secret. 

In the light of this statement, any tax officer or member of ICPAK should not disclose any 

information regarding income of a person unless:

• The recipient is an officer or person so employed in the course of his duties, or to 

a person authorised in that behalf by the Minister in relation to a person resident in 

Kenya, or to a court or person for the purposes of this Act;

• The recipient is in the service of the government, in the revenue and statistical 

department and the information will be used solely for revenue or statistical purposes 

(official purposes). The recipient should also have made a declaration of secrecy in 

relation to information coming to his knowledge in the course of his official duties;

• The recipient is an officer under the Higher Education Loans Board and he requires 

the name and address of any person granted education loan where such information is 

required for the performance of the Board’s official duties in recovery of the education 

loans.

7.10 Matters relating to new clients 

7.10.1 Acceptance of new clients

Members invited to act as tax advisers by clients must contact the existing tax advisers to 

ascertain if there are any matters they should be aware of when deciding whether to accept the 

appointment.

Before accepting a new client, members should consider whether acceptance of the client or the 

particular engagement would create any threats to compliance with the fundamental principles.

Potential threats to integrity or professional behaviour may be created from, for example, 

questionable issues associated with the client, or a threat to professional competence and due 

care may be created if the engagement team does not possess the necessary skills to carry out 

the engagement.

Where it is not possible to implement safeguards to reduce the threats to an acceptable level, 

members should decline to enter into the relationship.

Changes in Professional Appointment

It is required that members who are asked to replace another accountant to ascertain whether 

there are any professional or other reasons for not accepting the engagement. This may require 

direct communication with the existing accountant to establish the facts and circumstances 

behind the proposed change so that members can decide whether it is appropriate to accept the 

engagement.

The main purpose of communication is to enable members to ensure that there has been no action 

by the client which would on ethical grounds, prevent members from accepting the appointment 

and that, after considering all the facts, the client is someone for whom members would wish to 

act. Thus, members must always communicate with the existing accountant on being asked to 

accept appointment for any recurring work.

The extent to which a client's affairs may be discussed with a prospective accountant will depend 

on the nature of the engagement and on whether the client's permission has been obtained. If 

the client refuses permission, the existing accountant should inform the prospective accountant, 

who should then inform the client that he is unable to accept the appointment.

If the existing accountant fails to communicate with the prospective accountant despite the client's 

permission, the prospective accountant will need to make other enquiries to ensure there are no 

reasons not to accept the appointment. This could be through communications with third parties, 

such as banks.

Where the member is the existing accountant then, subject to obtaining the client's permission, 

he should disclose all information requested without delay.

7.11 Handling of client work 

Clients’ work should be handled with care. This is to ensure quality in output and delivery of the 

assignment.

7.12 Charging for services

The firm should have a policy for charging its clients. The fee would be dependent on time taken, 

on the output or deliverables, on a contingency basis or any other basis. The fee charged should 

be fair and uniform for its clients. ICPAK does not regulate its fees.

Matters giving rise to conflict of interest

One should take reasonable steps to identify circumstances that could pose a conflict of interest. 

These may give rise to threats to compliance with the fundamental principles. A conflict may arise 

between the firm and the client or between two conflicting clients being managed by the same 

firm. For example if the firm acts for its directors in their personal capacity.

A member may evaluate the threats by considering whether he has any business interests or 

relationships with the client or a third party that could give rise to threats. When the evaluation 

reveals some conflict of interest, some safeguard measures should be looked into. 

The safeguards ordinarily include the member in public practice:

(a) Notifying the client of the firm's business interest or activities that may represent a 

conflict of interest

(b) Notifying all known relevant parties that the member is acting for two or more parties in 

respect of a matter where their respective interests are in conflict

(c) Notifying the client that the member does not act exclusively for any one client in the 

provision of proposed services 

The member should obtain the consent of the relevant parties to act in ways to avoid conflict of 

interest. 

Where a member has requested consent from a client to act for another party (which may or may 

not be an existing client) and that consent has been refused, then he must not continue to act for 

one of the parties in the matter giving rise to the conflict of interest.

The following additional safeguards should also be considered:

(a) The use of separate engagement teams

(b) Procedures to prevent access to information (e.g. strict physical separation of such 

teams, confidential and secure data filing)

(c) Clear guidelines for members of the engagement team on issues of security and 

confidentiality

(d) The use of confidentiality agreements signed by employees and partners of the firm

(e) Regular review of the application of safeguards by a senior individual not involved with 

relevant client engagements.

Where a conflict of interest poses a threat to one or more of the fundamental principles that 

cannot be eliminated or reduced to an acceptable level through the application of safeguards, 

the member should conclude that it is not appropriate to accept a specific engagement or that 

resignation from one or more conflicting engagements is required.

7.13 Disclosures in tax returns, computations and correspondence with the Revenue Authority 

When a taxpayer or a tax practice is completing returns or making a declaration for any goods 

or remittance of revenue collected on behalf of the departments, she or he has an obligation to 

ensure that the return and declarations represent full and true disclosure of the transactions for 

the period covered. KRA may cross-check the information you provide.

The law provides for penalty for an incorrect return and/or prosecution in case of gross negligence 

or fraud.

Taxpayers have an obligation to disclose and produce all relevant information, records and 

documents required by KRA officials when carrying out their lawful duties. It is an offence to 

refuse to give or to withhold information, records or documents. Penalties for this offence have 

been prescribed under the various revenue Acts.

7.14 Dealing with the Revenue Authority 

The work of a tax practice involves frequent correspondence with the Kenya Revenue Authority 

officials. These may include requests to carry out audits or demand taxes from your clients. It is 

important that you fully co-operate with the KRA.

You have an obligation to accord KRA officials co-operation, due respect and freedom to carry out 

their lawful duties. You should not intimidate, abuse, threaten or influence them in any manner, 

whether financial or otherwise. 

7.15 Moral and social issues in taxation 

During the conduct of the tax practice many moral and ethical issues will arise, for example;

• Should I advise my client to evade tax?

• Should I overcharge my client?

• Should I collude with the revenue authority officials to defraud my client?

• Should I engage in s to get favours from the KRA on behalf of my clients?

• To the government; is it ethical for the government to collect revenue without using the 

resources for development?

The tax practitioner should exhibit high standards of moral, ethical and social uprightness in the 

discharge of his or her duties.