The Government through KRA is in need of money to cover its recurrent budget and have money for massive developments to meet it promised agendas. KRA has rolled program to audit companies and in the Tax procedures act KRA is allowed to undertake compliance audits in a company for a span of five years.
Initiatives towards meeting higher revenue targets include:
a). Legislations – e.g. repealing of VAT Act, Tax Procedures Act, Excise Act
b). Robust training of the KRA staff on areas such as TP;
c). Establishment of Revenue Protection Unit- RPS;
d). Reduction of tax exemptions;
e). Automation of tax filing services through the ITAX platform;
f). Taxpayer education and engagement through forums such as tax seminars, taxpayer’s awards
Audit triggers; what triggers audit
- Non-filing and late filing of returns.
- IFMIS system used by Government to pay its suppliers; when a company is paid through IFMIS the details is accessible to KRA where they follow to receive the tax due on these payments.
- Significant variations in amounts declared in returns; when there is variance between the amount on VAT and the amount decaled in computation of income tax. The sales on VAT returns for the year should be equivalent to the sales for income tax return.
- Continuous losses by a company; when a company declares losses for more than 5years.
- Industry trends versus specific company profits; every industry has its gross margin of profits, if a company declares very low margins compared with its industry margin.
- Business restructuring; when a company restructures to evade tax or declares very low income due to restructuring.
- VAT, customs and excise refund claims; any claimed refund should be audited.
- Third party information; were a third part claims to KRA that a company is evading tax. When a customer declares what he bought form a company through Itax platform and the company has not declared the same. When a supplier declares what he sold to a company and no similar declaration to the company.
- Media attention on a company; when a company receives awards, documentary in the media any media attention.
- Current or former employees giving out information; Employees who are not satisfied or malicious will also disclose some information to KRA.
- Inter-company transactions; were a company is selling or buying to a sister company at favorable terms to evade tax.