Kenya Revenue Authority (KRA) relies on taxpayers’ self-assessment to declare and pay taxes. KRA’s trust in the taxpayers sustains this system. If the KRA has reasons to believe you are being untruthful, they can demand a tax assessment. This assessment usually comes alongside a demand for unpaid taxes.
Receiving a tax assessment demand from KRA can be stressful, especially if you aren’t aware of any discrepancies between your tax declaration and KRA’s expectations. If you have received a tax assessment demand from KRA and don’t know where to start or how to respond, you’re on the right page. We’ve prepared this article to show you how to handle a KRA tax assessment.
What is a KRA Tax Assessment?
A KRA tax assessment is an official declaration by KRA that you owe them more tax than you declared and paid. Before KRA presents a tax assessment to a taxpayer, they engage with them to find out why there is a discrepancy between the taxpayer’s tax declaration and their records. They will request supporting documents like bank statements, sales records, and payslips to verify the taxpayer’s self-assessment.
If KRA identifies a gap between their estimation and the taxpayer’s self-assessment, they impose a tax liability on the taxpayer. They then communicate about this liability to the taxpayer orally and in writing. The taxpayer is offered time to respond to the issues before an official assessment and demand for taxes is made. If an agreement is not reached, KRA issues a demand for taxes and assessment.
Common Causes of KRA Tax Assessment
Several issues may prompt KRA to issue a tax assessment to a taxpayer. They include:
- Under-declaration of income: KRA trusts every taxpayer to truthfully declare their total income, including salaries, wages, rental income, corporate income, and business profits. Underdeclaration of income breaks this trust, leading to tax assessment.
- Claiming ineligible expenses: Tax laws allow taxpayers to deduct eligible expenses from their taxable income to lessen the tax burden. Claiming ineligible expenses, such as personal expenses and expenses not supported by proper documentation, is a ground for tax assessment.
- Late filing of returns: If you’re always filing your tax returns late or missing deadlines, KRA may issue a tax assessment on you and your business.
- Data mismatch between your declared tax and third-party sources: KRA pulls data from various sources to gauge whether taxpayers are truthfully declaring their taxes. These include bank statements and withholding tax certificates. If there are discrepancies between these records, KRA may issue a tax assessment.
How to Handle a KRA Tax Assessment
What’s the way forward after receiving a tax assessment from KRA? Take the following steps:
1. Study the Tax Assessment Notice
Before you respond to the notice, learn what it’s all about. Read the notice carefully and note the following details:
- Tax head- PAYE, VAT, Monthly Rental Income (MRI), Income Tax, etc.
- Due tax/assessment.
- Deadline for payment, objection, or appeal.
2. Review Your Records and Compare
Review your records to identify the data mismatch and understand why KRA is demanding an assessment. You could seek a tax expert’s help to review your invoices, payslips, filed returns, receipts, and other tax records.
3. Communicate with KRA
After reading the notice and reviewing your records, reach out to KRA and explain your case. You can do so via iTax or visit your nearest KRA Tax Service Office. After clarification, you can then decide on the next step- whether you’ll pay the demanded tax or file an objection.
4. Make a Decision
All the above steps lead to this last step- making a decision based on the circumstances. If you’ve reviewed your records and realized KRA’s claims are true, you should pay the assessment right away. KRA provides a deadline, 30 days from the date of the assessment notice. Failure to honor this deadline attracts more penalties and interest.
On the other hand, you can object if the claims made by KRA are unsubstantial, or you have a good explanation. You have up to 30 days after receiving the assessment notice to file your objection via iTax. We will discuss how to file a tax assessment objection in the next section.
How to File a KRA Tax Assessment Objection via iTax
Follow these steps to file a KRA tax assessment objection on iTax:
- Go to https://itax.kra.go.ke/.
- Enter your KRA PIN and click Continue.
- Enter your password and the security stamp, and click Login.
- Once you’ve logged in to your account, go to Assessment Disputes.
- Select Objection Application.
- Fill out the Request for Objection Application form, including Assessment Number and Type. Upload supporting documents and arguments.
- Click Submit.
- You’ll get an Acknowledgment Receipt. Click on the provided link to download the document.
What Happens When KRA Rejects Your Tax Assessment Objection?
There are three possible outcomes following a tax assessment objection from a taxpayer:
- KRA will reject the objection
- KRA will adjust the tax assessment
- KRA will cancel the tax assessment
In case of rejection, the taxpayer is entitled to file an appeal with the Tax Appeals Tribunal.
What is the Tax Appeals Tribunal?
The Tax Appeals Tribunal (TAT) is an independent legal body that resolves disputes between KRA and taxpayers. You can take your tax assessment case to this tax court if you aren’t satisfied with KRA’s rejection.
Here are tips and tricks for a successful appeal with TAT:
- File the appeal early: Appeal KRA’s decision within 30 days of receiving the tax assessment rejection.
- Back your case: Ensure you have a strong case against KRA by preparing supporting documents, records, facts, and legal provisions.
- Be present at the tribunal hearings: Personally attend the case hearings or hire a tax agent/legal counsel to represent you.
TAT will hear your appeal and deliver a judgment.
Do You Need Help Handling a KRA Tax Assessment? We Got You
Handling a KRA tax assessment on your own is possible. However, some perks come with hiring an experienced tax agent or consultant. The expert helps you:
- Handle complex tax assessments spanning multiple tax periods and obligations.
- File objections grounded in factual data and solid evidence.
- Appeal with the TAT and attend the hearings on your behalf.
At Gichuri & Partners, we handle all kinds of tax consultancy and advisory services, including KRA tax assessments. Let our experienced team of experts handle your tax assessments to save you time and energy. We will review your assessment, prepare an objection if need be, and follow through until the case is resolved. Contact us to get started.
