Tax Administration and Compliance
Foundations
Tax Administration and Compliance
Syllabus tag: KASNEB CPA | Intermediate Level | CA26 Public Finance and Taxation | Topic 2 Tax Administration and Compliance
Rates check. Penalty and interest rates are set by the Tax Procedures Act and amended by Finance Acts. Confirm the current figures on the KRA website.
Lesson objectives
By the end of this topic, you will be able to:
- List the filing and payment deadlines for the main taxes
- Distinguish the types of assessment
- Set out the objection and appeal process and its time limits
- Compute penalties and interest for late filing and late payment
- Distinguish tax avoidance from tax evasion
Why this matters
A candidate who computes a liability perfectly and misses the deadline has still failed the client. The Tax Procedures Act 2015 governs every tax, and its time limits are strict.
Filing and payment deadlines
| Tax | Due |
|---|---|
| PAYE | 9th of the following month |
| VAT | 20th of the following month |
| Withholding tax | 20th of the following month |
| Instalment tax (companies) | 4th, 6th, 9th and 12th months of the period |
| Balance of corporation tax | Last day of the 4th month after the year end |
| Company return | Last day of the 6th month after the year end |
| Individual return | 30 June |
The pattern worth memorising: PAYE on the 9th, almost everything else on the 20th, and for companies the money is due two months before the return.
A nil return must be filed even where there was no activity. Failing to file a nil return attracts the same penalty as failing to file a real one.
Types of assessment
Self-assessment. The taxpayer computes and declares. This is the norm, and the return is treated as an assessment.
Default assessment. Where no return is filed, the Commissioner assesses on the information available.
Amended assessment. The Commissioner corrects a return believed to be wrong, generally within five years, or without limit where fraud or gross neglect is involved.
Advance assessment. Made before the end of a period where revenue is considered at risk.
Objection and appeal
The route is sequential, and each step has a deadline.
- Notice of objection to the Commissioner — within 30 days of the assessment, stating the grounds and the amendments sought. Tax not in dispute must be paid first.
- Commissioner's decision — within 60 days, failing which the objection is treated as allowed.
- Appeal to the Tax Appeals Tribunal — within 30 days of the decision.
- Appeal to the High Court — within 30 days, on a point of law.
- Court of Appeal, and ultimately the Supreme Court.
The 60-day rule is the one most worth knowing. Silence from the Commissioner is not a refusal — it operates in the taxpayer's favour.
Penalties and interest
| Failure | Consequence |
|---|---|
| Late filing, individual | The greater of 5% of tax due or a fixed minimum |
| Late filing, company | The greater of 5% of tax due or a higher fixed minimum |
| Late payment of PAYE | 25% of the tax plus 2% a month interest |
| Late payment generally | A percentage penalty plus monthly interest |
| Failure to deduct withholding tax | The agent becomes liable for the tax itself |
| Fraud | Penalties up to double the tax, and prosecution |
Two features to note. Interest compounds the delay — it runs monthly, so a long delay costs far more than a short one. And where an agent fails to deduct, the liability moves to the agent and not back to the person who should have borne it.
An employer who fails to deduct PAYE, or a company that fails to withhold tax on a payment, is liable for the tax itself, whatever the recipient did.
Avoidance and evasion
Tax avoidance is arranging affairs within the law to reduce liability — using a permitted allowance, choosing an efficient structure, timing a disposal. It is lawful.
Tax evasion is reducing liability by unlawful means — understating income, inflating expenses, failing to register, falsifying records. It is a criminal offence.
The line is not always tidy. Kenya has general anti-avoidance provisions allowing the Commissioner to disregard a scheme entered into with tax avoidance as its main purpose, so an arrangement can be lawful in form and still be set aside.
Transfer pricing rules require transactions between related parties to be priced at arm's length, preventing profit being shifted out of Kenya through inflated management fees or royalties to a related company abroad.
:::checkpoint A company objects to an assessment on 1 March. The Commissioner has not replied by 15 May. State the position and the date it took effect. :::
Record keeping and the tax agent
Records must be kept for the statutory period — generally five years — and produced on demand. The Commissioner has powers of access to premises, information and data.
A tax agent must be registered, and carries professional obligations to both client and Commissioner. A CPA advising on tax owes a duty to present the client's position fully and accurately; assisting a client to evade tax is a criminal act and a breach of the ICPAK code.
:::checkpoint A client asks you to omit a source of income from a return, arguing that KRA will never discover it. Set out your professional obligations and what you would do. :::