KRA issues amnesty to Kenyans burdened by interest, penalties

Taxpayers who pay the principal taxes will have their penalties and interests written off. [Standard]

The Kenya Revenue Authority (KRA) has announced a new tax amnesty programme aimed at providing relief to taxpayers burdened by interest and penalties on outstanding tax debts. 

Under the Tax Procedures (Amendment) Act, 2024, the latest amnesty will cover the period up to December 31, 2023, and will be available from December 27, 2024, to June 30, 2025. According to KRA, taxpayers who have settled all principal taxes due by the end of December 2023 will automatically qualify for a waiver of related penalties and interest, eliminating the need for an amnesty application.

For those who have not yet paid their principal taxes, the KRA has outlined a process for obtaining the amnesty. Taxpayers must apply to the Commissioner for Domestic Taxes and propose a payment plan for any outstanding amounts, which must be fulfilled by June 30, 2025.

“The tax amnesty programme will run from 27th December 2024 to June 30, 2025,” said the taxman in a public notice.  “A person who has paid all the principal taxes that were due by December 31, 2023, will be entitled to automatic waiver of the penalties and interest related to that period and will not be required to make an amnesty application.”

The KRA added: “A person who has not paid all the principal taxes accrued up to December 31, 2023, and is unable to make a one-off payment for the outstanding principal taxes will be required to apply to the Commissioner for the amnesty and propose a payment plan for any outstanding principal taxes, which should be paid by June 30, 2025.”

READ: KRA announces waiver on tax interests and penalties

The move by the KRA comes as President William Ruto faces renewed pressure to reassess his administration’s revenue mobilisation strategies in the New Year with data from Treasury revealing significant shortfalls in tax collection. 

Treasury Cabinet Secretary John Mbadi announced in November that by the end of October, the total revenue collection by the State fell short by Sh73.7 billion against its targets for the period mainly due to a Sh48.1 billion shortfalls in ordinary revenues or taxes. 

The shortfall was recorded despite KRA’s recent aggressive tax collection efforts. The figures show that total revenues amounted to Sh854.5 billion as of October against a target of Sh928.2 billion. 

“By the end of October 2024, revenue collection amounted to Sh854.5 billion against a target of Sh928.2 billion resulting in an underperformance of Sh73.7 billion,” said Mbadi. “The underperformance was on account of shortfall registered in ordinary revenue of Sh48.6 billion and ministerial A-i-A (appropriations in aid) of Sh25.1 billion.”

The KRA’s inability to meet Treasury targets comes even as President William Ruto's government pursues a rigorous fiscal consolidation plan aimed at controlling public debt and enhancing revenue collection. 

Expenditure trends also reflect the government’s financial challenges. Total expenditures were below target by Sh101.9 billion, primarily due to reduced disbursements in recurrent expenditure and the County Equitable share said Mbadi. “Expenditures by the end of October 2024 were below target by Sh101.9 billion on account of below target disbursements towards recurrent expenditure and County Equitable share,” said Mbadi.

“Fiscal operations by the end of October 2024 resulted in an overall deficit inclusive of grants of Sh222.9 billion (1.2 per cent of GDP) against a target of Sh249.2 billion (1.4 per cent of GDP).” The underperformance in tax collections spans all major tax heads, Treasury confirmed.

This has prompted the Treasury to go back to the drawing board for a comprehensive review of existing strategies to collect tax by the Kenya Kwanza administration Mbadi said. 

According to Mbadi, going forward, a newly revamped Kenya Kwanza government’s Medium-Term Fiscal Policy aims to support economic growth through the implementation of a “comprehensive revenue mobilisation plan.”

This includes broadening the tax base, minimising unnecessary tax expenditures, and leveraging technology to enhance tax compliance. Additionally, the Ruto administration is focusing on increasing non-tax revenues from services provided by various ministries, departments, and agencies.

 As part of these efforts, the government plans to implement the Medium-Term Revenue Strategy (MTRS), which aims to progressively strengthen tax revenue mobilization efforts to 20 per cent of GDP over the medium term. 

Mbadi also said the government plans to improve governance and efficiency within state-owned enterprises (SOEs) and to explore public-private partnerships (PPPs) for commercially viable projects.

Looking ahead in the New Year the Ruto government faces an uphill task as it says for the fiscal year 2025/26 budget it will aim for total revenues of Sh3.516.6 trillion, representing 17.6 per cent of GDP, an increase from Sh3.060.0 trillion or 16.9 per cent of GDP in FY 2024/25.

 It plans to raise Ordinary revenues or taxes to Sh3.018.8 trillion, up from Sh2.631.4 trillion in the previous fiscal year further putting pressure on KRA. President Ruto recently assented to the Tax Laws (Amendment) Bill 2024 which would enable the government to generate some of the revenue lost with the collapse of the Finance Bill 2024 while, at the same time, providing relief for employees, retirees and businesses.  

The principal object of the Bill, introduced by National Assembly Majority Leader Kimani Ichung’wah, was to amend the provisions of four Acts of Parliament, namely, the Income Tax Act (Cap. 470), the Value Added Tax Act (Cap. 476), the Excise Duty Act (Cap. 472) and the Miscellaneous Fees and Levies Act (Cap. 469C).  

Among other changes, the amendments provide tax reliefs to employees and retirees; enhance benefits to employees; promote the local manufacturing sector; promote the agricultural sector and the local farmers; incentivise home ownership and promote housing and settlement; promote trade between Kenya and other States; mobilize domestic resources and enhance the taxation regulatory framework.  

Amendments to the Income Tax Act allow the Affordable Housing Levy (AHL) and contributions to post-retirement medical funds to be deducted from the payable tax liability. This addresses the issue of double taxation and allows taxpayers to enjoy the full benefits of their AHL and post-retirement medical funds contributions, according to a brief by Parliament.  

ALSO READ: KRA offers tax amnesty for interest and penalties

Enactment of the Bill also means the deductible interest limit for mortgages has increased from Sh300,000 to Sh360,000 for mortgages.  

As a result, individuals can now deduct a higher amount of interest paid on loans for the purchase or improvement of their residential properties when calculating their taxable income. This will incentivise home ownership and is aligned with the Housing and Settlement pillar of the Bottom-up Economic Transformation Agenda (BETA).  

The Bill increases the amount deductible for contributions to registered pension or provident funds from the tax liability of individuals and employers to encourage a saving culture for retirement purposes while, at the same time, it enhances the benefits provided by employers to employees of meals, non-cash and gratuity and similar payments that are exempt from tax.  

However, to recoup some of the revenues lost when the Finance Bill 2024 was withdrawn following the Gen Z protests, Parliament has retained the National Treasury’s proposal of a Significant Economic Presence Tax at an effective rate of six per cent for non-residents. Additionally, the Bill introduces the Minimum Top-Up Tax at a minimum effective tax rate of 15 per cent.  

The government argues that two new taxes align the taxation of digital services with international best practice, and the taxation of multinationals with the global practice to prevent tax base erosion, respectively.  

National Treasury John Mbadi has initially, however, promised to retain the tax at three per cent, as was the case with the Digital Service Tax, which has now been replaced, following concerns from industry players and experts on its impact.