Lead image for KRA tax audits: What taxpayers need to know.
A Kenya Revenue Authority (KRA) tax audit is one of those events that most businesses would rather not receive notice of. Yet an audit does not necessarily mean that a taxpayer has done something wrong.
KRA is legally empowered to review taxpayers’ affairs to establish whether the correct taxes have been declared and paid. The outcome may be that the taxpayer is found compliant, or it may result in an additional assessment where KRA identifies a tax shortfall.
KRA may undertake returns reviews, comprehensive audits or investigations covering taxes such as income tax, VAT, PAYE, withholding tax, excise duty and customs duty.
A KRA tax audit is essentially an examination of a taxpayer’s financial and tax affairs to determine whether the taxpayer has complied with its obligations under the applicable tax laws. The process may involve reviewing tax returns, accounting records, invoices, bank information, contracts, payroll records and other documents relevant to determining the taxpayer’s liability.
The Tax Procedures Act, 2015 (TPA) gives the Commissioner broad powers to administer tax laws and obtain information relevant to determining a taxpayer’s liability. Importantly, the TPA defines a “document” broadly to include books of account, records, bank statements, receipts, invoices, vouchers, contracts, agreements, tax returns, tax invoices and electronic data.
There is no general rule requiring KRA to audit every taxpayer after a particular number of years. In practice, taxpayers may be selected for compliance checks, returns reviews, audits or investigations depending on KRA’s compliance mandate and risk assessment.
This means that a taxpayer should not assume that being audited once means it will not be audited again, or that not having been audited for several years means the business is unlikely to be selected. Businesses should instead maintain their tax records on an ongoing basis.
The TPA generally requires taxpayers to retain tax documents for five years from the end of the relevant reporting period, subject to statutory exceptions, including where the documents relate to an amended assessment or ongoing proceedings. Further, the Commissioner may assess outside the ordinary five-year period in cases involving gross or wilful neglect, evasion or fraud.