The decision by the Kenya Revenue Authority (KRA) to backdate the new taxes to July 1 has left tax agents with a compliance nightmare as employers brace for a double hit later this month remitting the taxes that were uncollected due to an earlier suspension by a court.
The taxes unremitted within the five-day window are technically attracting penalties for non-compliance following the decision by the (KRA) to apply the taxes from the effective date under the Finance Act 2023.
The Tax Procedures Act of 2015 imposes a one percent penalty for late tax payments per month or part of a month the amount remained unpaid.
Among those who will be the hardest hit are commercial banks who in 2022 collected Sh37.3 billion, accounting for 25.2 percent of all withholding tax collected by the KRA, according to a survey conducted by the audit firm, PwC.
Interest expenses on deposits are the main driver of withholding tax in the banking sector.
Total sector payments on interest payments grew by 12.5 percent between 2021 and 2022 to Sh153.1 billion.
The Finance Act 2023 revised the date for remitting withholding taxes from the 20th day of the following month to five working days after collection.
“The following changes have been effected on withholding tax payment procedures to comply with the Finance Act 2023, effective from July 1st, 2023.
The due date for the payment is now five working days from the date of payment to the supplier/withholdee. This has taken into account weekends and holidays and the system will automatically impose late payment penalty and interest as provided by the Tax Procedures Act for all late payments,” the KRA states in an internal memo on iTax enhancements.
