EDITORIAL: Tax penalties waiver plan good for business

Legal changes that exempt firms and individuals who voluntarily disclose their tax liabilities from punishment will go a long way towards making the Kenya Revenue Authority (KRA) business friendly.

In recent years, KRA has seemingly been viewed inhospitably by businesses due to its aggressive pursuit of tax cheats and firms avoiding duty payment. As a result, many firms that have been late in paying taxes have preferred to hide from the taxman to avoid huge penalties that come with tax liabilities as others opt for lengthy court fights.

Given this scenario, Treasury’s legal amendments that offer interest and penalties waiver on taxes that have not been paid in five years is commendable.

Under the voluntary tax disclosure plan, which shall run for three years with effect from January 1, 2021, the Treasury says those who declare pending liability and pay within one year shall enjoy 100 percent interest and penalty waiver.

Those who voluntarily disclose and pay the pending tax liability within the second year of the programme will receive remission of 50 percent while payments that come in the third year will have 25 percent relief.

This will encourage firms and individuals to voluntarily declare accumulated bills, a potential boost to KRA, which has been falling short of revenue targets collection targets in recent years.

To meet the targets, the taxman must bring more people into the tax bracket and curb duty evasion.

In doing this, however, KRA must also be seen to be friendly and a partner keen to see businesses succeed even as it seeks to achieve the target of having more Kenyans pay their fair share of taxes. Aggressive actions including freeze of banks accounts and order to remit tax directly to the authority from clients’ accounts should be pursued as a last resort. These actions have the potential to ground businesses and aggravate the increasing crisis of unemployment through layoffs.

Lastly, considering that KRA detectives have identified wealthy individuals and companies that owe it an estimated Sh250 billion, an amnesty to these individuals and companies would amount to a “win win” deal that has potential to recover the billions while potentially avoiding acrimony.