We are in that season again where the most popular word string is ‘tax returns in Kenya’. Every businessperson is talking about them, and individual taxpayers have found themselves caught up in similar conversations.
At the same time, the Kenya Revenue Authority (KRA) is broadcasting the deadlines in different fora, reminding people to file their returns before time is up. And the media is awash with news on the tax returns and further reminders to Kenyans to comply with tax requirements before the end of June.
But what exactly are tax returns in Kenya, and why does anyone need to care about the impending deadlines?
What Are Tax Returns in Kenya?
We often talk a lot about tax returns in Kenya, but the truth is, many people, including those who are tax compliant, are unsure about what these returns entail. So, what are they?
Tax returns are defined as the official form or declaration submitted to a government tax Authority (KRA in Kenya) detailing a taxpayer’s income earned, allowed deductions and tax credits (if any) over a specific period, determining if the taxpayer owes additional taxes or is due for a refund.
As such, you can think of them as a way for you and KRA to be on the same page about your tax compliance.
Why Should You File Tax Returns in Kenya?
If you look at the figures from the last few years, it is clear that KRA has been making strides in getting more people to file tax returns. For example, in 2023, they recorded that over 6.3 million Kenyans filed their returns on time, marking a 14.5% growth from the 2021 numbers. Since this trend has been on the up and up, KRA was quoted as stating that they were targeting an 85% compliance rate in 2026.
It is clear that more people are filing their returns. But what is motivating them? Why should you follow suit?
The answer comes down to tax compliance. The law requires that every adult individual and businesses with taxable income must report their earnings. But what of people who do not have taxable income? According to the same laws, even if you are unemployed and had zero income the previous year, you are required to file a nil income.
When Should You File Your Returns?
Towards the end of June every year, there is often a big rush from both individuals and businesses to file returns before the 30th of this month. And that is not just a coincidence. It lies in the fact that generally, most businesses must file their returns on or before 30th June of every year. However, not all businesses are bound by this regulation.
Below are the key factors to consider if you run a business:
Your designated accounting period. An organization’s tax return deadline is generally tied to its designated accounting period, which requires filing by the last day of the 6th month following the end of its financial year or accounting year. Therefore, while some businesses may find that this falls in June, others find that they need to file their returns at different times.
Your business structure and tax obligations. Further, you find that many businesses are subject to other tax obligations that depend on their business structures and tax obligations, and which have separate timelines. For example, VAT (Value Added Tax) and PAYE are typically filed and paid on a monthly basis, regardless of the annual corporate tax return. Thus, while you may need to file your annual tax returns in Kenya per your accounting period, there are other tax obligations that you may need to meet before this said deadline.
Taxes tied to legal requirements. In addition to the above taxes, which are periodical and thus predictable, there are other taxes that you may need to pay depending on the different legal requirements binding them and per those requirements. For example, Capital Gains Tax is paid when the right and required legal processes occur, irrespective of the time of the year, and so do some customs duties.
Therefore, it is not enough to file tax returns in Kenya from an annual perspective alone, and you must instead consider these additional factors. To ensure you are compliant, you can verify your specific business tax return deadline using your professional tax consultant.
How Should You File Tax Returns in Kenya?
Beating the deadline is not enough. You also have to make sure that you have filed your tax returns correctly so as to avoid the consequences we will discuss in a later section. So, how should you go about this process the right way?
For people and businesses filing nil returns, the process is pretty straightforward as the KRA portal provides a menu option that allows you to do so in just a few minutes. However, in cases where you are not filing nil returns, there are core elements that the returns should cover. Luckily, the tax return forms issued by the KRA can guide the taxpayer to a certain extent. However, you find that the requirements set out for businesses tend to be more nuanced compared to those for individuals.
For individuals who are employed, the requirements often lean on documents such as P9 forms. Additional requirements may include mortgage interest certificates, insurance premium certificates, etc.
For businesses, requirements for records are often quite detailed, and they generally extend to documents such as:
- Profit and loss statements,
- Balance sheets,
- Trial balances,
- eTIMS receipts and invoices,
- Withholding tax certificates,
- Depreciation and capital allowance schedules,
- Bank statements, etc.
When it comes to business returns, the expenses incurred in earning the income in question are a core element of the returns. These have to be well covered here so that only the right income is subjected to tax.
Other necessary details that should be included when filing the returns include reliefs, tax exemptions, annual losses, carried forward losses, balance sheets, capital expenditures, applicable tax rates, etc.
It is important to note that, per the Income Tax Act, there are different requirements for different businesses. The law also provides for the amendment of returns, which can be done should the taxpayer realize the need for the same after filing the annual returns. Therefore, you can always review your filing to ensure that you have covered all your bases.
What Happens If You Do Not File Your Returns?
While millions of Kenyans remain tax compliant by filing their returns on time, there are many others who do not. Some of them fail to do so because they are exempt from filing tax returns in Kenya. But others miss these deadlines despite being required to file their returns. For instance, in 2024, KRA reported that by June 30th, 953,971 active taxpayers had missed the deadline.
So, what happens to people who do not file their tax returns in Kenya on time? Well, since the filing of returns is a legal requirement, failure to comply with the same invites negative legal consequences, as follows:
Fines. The KRA often issues hefty fines to people as well as businesses that do not file their returns on time. Since taxes vary, you find that the fines also vary. For instance, people who miss their individual tax returns deadlines are often subject to KES 2,000 or 5% of the tax due, whichever is higher. And for non-individual tax returns, the penalties start at KES 20,000 or 5% of the tax due, whichever is higher. There are also penalties charged for missing returns when it comes to VAT, excise duty, PAYE, withholding tax, etc. Even people who have no source of taxable income are still required to file nil returns by the deadline, or else, they can be subject to these financial penalties.
Assessments. When you fail to file your tax returns in Kenya on time, the KRA is left with the opportunity to estimate the income of the business in issue and consequently assess it and demand the estimated tax amounts. The figures here are normally punitive and leave the taxpayers a lot worse off than would have been the case had they filed the returns. In fact, many businesses find themselves caught up in KRA tax disputes, which can leave them subject to long legal battles and financial penalties.
Losses. You can also lose your refunds. If the Government owes you money, you must file your tax returns in order to claim it. If you do not do this within the requisite period, you lose your refunds.
Loan and benefits delays. Unfiled taxes result in your categorization as being non-compliant. As such, these missed returns can delay loan approvals and the acquisition of some business benefits. It can also complicate your eligibility for specific Government benefits or result in the loss of required business and professional licenses.
So, while there are many people who choose to take the risk of not filing tax returns in Kenya, the truth is that you are better off being compliant.
What If You Cannot Afford the Taxes?
Another reason why people fail to file tax returns in Kenya on time is that they lack the money to pay the due taxes. But guess what? Filing tax returns does not mean that you must have the money with you at that moment.
Should you think that you will not be able to pay the taxes due and owing once your returns are ready, just file the returns and deal with the taxes later. You can pay the taxes in instalments, and you can also negotiate with the KRA on a workable payment proposal.
This flexible compliance strategy results in a better business environment as opposed to failing to file your returns.
The Perks of Filing Your Returns on Time.
By being compliant alongside the millions of other Kenyans who meet their tax obligations, you will have complied with the legal obligation to do the same and avoided the negative consequences of failing to file.
But that is not all.
When you file your returns, you will be in control of your tax process and the outcome. Thus, you will be able to take care of the benefits, if any, that you are supposed to reap from the process. Again, you will avoid the run-ins with the Revenue Authority and the unnecessary punitive tax estimates that often befall the people who miss these key deadlines.
All in all, filing your returns on time gives you peace of mind, thus enabling you to be more productive in your work. So, in this and the coming years, we urge you not to be late or fail to file your returns because you now have your answers.
Dealing with KRA Disputes?
Following the filing of tax returns in Kenya or even failure to do so, many people and businesses find themselves dealing with tax assessments or demand notices from the KRA. Given how time-sensitive these matters can be and their likely outcomes if not handled with the discretion that they deserve, it is important to engage a legal professional who is well-versed in tax matters to help you respond to the KRA effectively and in a timely manner.
We, at The Law and You, are here to offer you this legal help, and if you wish to discuss your tax disputes with us further, you can use the form below, thus allowing our team to get back to you as soon as possible.