Background

The Tax Procedures Act No. 29 of 2015 (hereinafter “the Act”) was assented to by H.E. President Uhuru Kenyatta on 15^th December 2015 and subsequently commenced on 19^th January 2016.

It is instructive to note that the phrase “Tax Law” that shall be cited herein means:  (i) The Tax Procedures Act; (ii) the Income Tax Act, (iii) the Value Added Tax Act, (iv) the Excise Duty Act; and (v) any regulations or other subsidiary legislation made under Tax Procedures Act or the Income Tax Act, the Value Added Tax Act, and Excise Duty Act.

Most importantly, the Act sets out to harmonise and consolidate the procedural rules for the administration of tax laws in Kenya and all connected purposes. Furthermore, please note that the tax payable shall be charged pursuant to the respective Acts of Parliament i.e. Income Tax Act, the Value Added Tax Act, and Excise Duty Act and not under this Act.

To begin with, an offence is a crime, felony, misdemeanour or contravention or other breach of, or failure to comply with, any written law, for which a penalty is provided.

A penalty, on the other hand, is defined as punishment imposed on the offender usually in form of an imprisonment or a fine.

Administrative Penalties and Offences under the Act                            

The Administrative Penalties and Offences are adequately outlined in Part XII of the Act.

It is imperative to understand the following in respect to general provisions relating to administrative penalties and offences in this Act:

• A person shall not be subject to both the imposition of a penalty and the prosecution of an offence in respect of the same act or omission in relation to a tax law.

 

• If a person has committed an act or omission that may be liable under tax law to both imposition of penalty and prosecution of an offence, the Commissioner shall decide whether to demand for the penalty OR to prosecute the offence.

 

• Where a person has paid penalty under tax law and the Commissioner commences prosecution, penalty shall be repaid to the said person as refund tax under Section 48 of the Act and the person shall not pay penalty, in the case of a prosecution, unless the prosecution is withdrawn.

The penalties and offences under the Act are summarised as follows:

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SECTION	PARTICULARS	PENALTY
81	Penalties relating to registration and licensing
	Failure to apply for registration	Kshs. 100, 000.00 for every month/or part of a month of default. The penalty imposed shall not exceed Kshs.1,000,000.00
	Failure to apply for deregistration or cancellation of registration	Kshs. 100, 000.00 for every month/or part of the month of default. The penalty imposed shall not exceed Kshs.1,000,000.00
82	Penalty for failure to keep  documents	Where no tax is payable for the reporting period for the period to whichthe failure relates, the penalty shall be Kshs.100,000.00
83	Late submission penalty
	Submission of a tax return after  due date	25% of the tax due or Kshs.10,000.00, whichever is higher in respect to an employment income return;   Ksh.5,000.00 if it is in relation to Turnover Tax return; or   In any other case 5% of the tax payable under the return or Kshs.20,000.00 whichever is higher.
	Submission of a document other than tax return after due date	Kshs.1000.00 for each day or part day of default. The total penalty shall not exceed Kshs.50,000.00
84	Tax shortfall penalty
	Under Section 84(2)- this provision is subject to section  84(3) and (4) of the Act	Tax shortfall shall be:   85% of the tax shortfall when thestatement wasor omission to an Authorised Officer was made deliberately; or   20% of the short fall in any other case
	Under Section 84(3)	Tax short fall penalty shall be increased by:   10% points when this is the 2nd application of this section to that person; or   25% points when this is a 3rd or subsequent application of this section to that person
	Under Section  84 (4)	Tax shortfall penalty imposed under Section 84(2) shall be reduced by 10% when a person voluntarily discloses  to the Commissioner the statement or omission to which  the section applies prior to:   discovery by the Commissioner of the tax shortfall; or   The commencement of an audit of the tax affairs of the person to whom the statement relates.
85	Tax Avoidance Penalty	Tax avoidance penalty is equal to double the amount of the tax that would have been avoided.
86	Penalty for failing to comply with electronic tax system	Kshs. 100,000.00
87	Penalty for failure to appear before the Commissioner -pursuant a notice  issued by Commissioner under section 61 of the Act	Kshs.10,000.00 in case of an individual; and   Ksh.100,000.00 in any other case.
88	Penalty in relation to fraudulent claim for refund	Penalty of an amount equal to two times the amount of the claim.

 

Highlights of General Provisions Relating to Penalty

• Each penalty shall be calculated separately with respect to each section in this division

 

• A person is liable to a penalty only when the Commissioner notifies in writing that person of a demand for the penalty setting out the amount of the penalty payable and the due date for the payment being a date that is at least 30 days after the date of notification.

 

• A person liable may apply in writing to the Commissioner for the remission of the penalty payable and such application shall include reasons for the application.

 

• The Commissioner may upon the above application, on his own motion and with the approval of the Cabinet Secretary , remit,in whole or in part, any penalty payable by a person except a penalty imposed under section 85 of the Act.

 

•  

The offences provided under this Act are as follows:

SECTION	NATURE OF OFFENCE
90	Offences relating to registration or licensing
91	Offences relating to PINs (Personal  Identification Numbers)
92	Offences by tax agents
93	Failure to maintain documents
94	Failure to submit tax return of other documents
95	Failure to pay tax
96	False or misleading statements
97	Fraud in relation to tax
98	Offences relating to recovery of tax
99	Offences relating to enforcement powers
100	Obstruction of authorised officer
101	Aiding or abetting an offence
102	Offences by officers and staff of the Authority
103	Offences by employees, agents , and companies

 

SANCTIONS FOR OFFENCES

A person convicted of any offence under the Act shall be liable as follows:          

	OFFENCE	SANCTIONS
	Where a person is convicted of any of the offences under  the Act (subject to a conviction of a  person  under Sections 98(1),  102(1), or 97 of the Act)	Fine not exceeding Ksh.1,000,000.00; or Imprisonment for a term not exceeding 3 years; or
	Where a person is convicted of an offence under Sections 98 (1) or 102(1) of the Act	Fine not exceeding Kshs.2,000,000.00; or Imprisonment for a term not exceeding 5 years; or Both
	Where a person is convicted of an offence under  Section 97  of the Act	Fine not exceeding Kshs.10,000,000.00 or double tax evaded, whichever is higher; or Imprisonment for a term not exceeding 10 years, or Both
	Where a person is convicted  of an offence under Section 92 of the Act	Fine not exceeding Kshs.5,000,000.00 of double tax evaded, whichever is higher; or Imprisonment for a term not exceeding5 years, or Both

 

Other important notes:

• Where a person is convicted of an offence under a tax law and of which taxes were not paid, the Court may order the convicted person to pay the whole or such part that remains unpaid, either in addition to, or in substitution of any other penalty.

 

• A person charged with an offence under a tax law may be prosecuted any place in Kenya. Notably, an offence under this Act shall be tried in the Court designated to try offences of corruption or economic crimes.

 

• Outstanding tax or late payment of interest due and payable shall be paid by the tax payer despite his/her prosecution.

 

CONCLUSION:

This treatise is hardly the content that is intended to make the reader a tax expert – it is as the title says a basic introduction to the penalties and offences under the Tax Procedures Act.

As is common with many other countries globally, tax law in Kenya is complex and increasingly becoming so despite best efforts to simplify it – perhaps the best advice that can ever be given to tax-payers is to maintain a conservative stance with respect to tax issues and where there is a query seek professional advice at the earliest point where doubt sets in – this after all is tax law!

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Disclaimer: This article has been prepared for informational purposes only and is not legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Nothing on this article is intended to guaranty, warranty, or predict the outcome of a particular case and should not be construed as such a guaranty, warranty, or prediction. The authors are not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information. Readers should take specific advice from a qualified professional when dealing with specific situations.