A new tax amendment proposal by the National Treasury has designated non-compliant partners as agents for tax recovery to improve tax compliance.

This means that if one partner in a business fails to fulfil their tax obligations, the other partners can be held responsible for ensuring that the taxes are paid. In Kenya, business partners in a partnership pay their taxes individually to the Kenya Revenue Authority (KRA) based on their share of the profits.

This change is intended to enhance accountability within partnerships and ensure that all partners meet their tax responsibilities, thereby strengthening the overall tax collection system in Kenya.

Tax experts at PwC state that in the Draft Income Tax Procedures Rules 2024, “Section 39A of the Tax Procedures Act (TPA) will apply to the recovery of unpaid taxes.  The section outlines stringent consequences for withholding agents who do not comply with legal obligations to deduct or withhold taxes as required.

The draft rules will undergo a public consultation process, allowing stakeholders to provide input on these crucial changes before they are finalised. The deadline for submissions is set for November 22.

In addition to this provision, the amendments introduce a 60-day limit for the Commissioner of Taxes to resolve objections related to tax disputes. Currently, there is no specific timeframe for addressing these objections, which can lead to prolonged uncertainty for taxpayers.

The new rule aims to provide greater certainty and efficiency in the dispute resolution process, allowing taxpayers to receive timely responses to their concerns.

The proposed rules also stipulate that withholding taxes on eligible payments must be paid within five working days after deduction. The change from the existing requirement, allows payment by the 20th of the following month. By shortening this timeline, the National Treasury aims to enhance cash flow management and compliance among taxpayers.

Security deposits

The new proposals also allow for the flexibility in security deposits for distraint procedures. Under current provisions of the Income Tax Act Cap 470, agents involved in distraint must provide a fixed security deposit of Sh10,000.

The new amendments suggest shifting this responsibility to allow the Commissioner to determine security deposit amounts based on individual case circumstances. This tailored approach is expected to improve compliance and enforcement by aligning deposit requirements with specific situations.

Distraint refers to the legal process by which government authorities seize a taxpayer’s property to satisfy a tax debt. It is typically employed when a taxpayer has failed to pay their taxes despite receiving notices and demands for payment. By giving the Commissioner more control over this process, the proposed changes aim to enhance compliance and ensure that tax obligations are met more consistently.

The draft rules also include updates that align with various recent tax changes introduced through recent Finance Acts and other legislative measures.

Treasury Cabinet Secretary John Mbadi has proposed several changes to improve tax compliance and revenue collection.

Among them is the reduction of Value Added Tax (VAT) from 16 per cent to 14 per cent and a decrease in corporate income tax from 30 per cent to 25 per cent.