KRA STARTS MIGRATING LEGACY LEDGER BALANCES AND VALIDATING INPUT VAT CREDITS ON ITAX

With a view to tightening its enforcement measures, the Kenya Revenue Authority (KRA) has commenced the process of migrating legacy ledger balances and validating input VAT credits on iTax. The aim is to ensure settlement of historical taxes owed by taxpayers and to ensure that taxpayers pay the correct amount of VAT.

Migration of legacy ledger balances to iTax

Five years ago, the KRA made it mandatory for taxpayers to file tax returns online on the iTax system. The KRA is now finalising the process of migrating tax balances from its old system (ITMS) to iTax.

The migration process, which has commenced with large and medium taxpayers, is being undertaken as follows:

• the KRA will undertake a reconciliation of a taxpayer’s account in the old system against iTax to establish the correct balances to be migrated onto iTax;
• before migration, the taxpayer will receive a letter from their KRA station to confirm the accuracy of their ledger balance. As the KRA has indicated that the confirmation request will not constitute an assessment, taxpayers are entitled to provide documentary evidence disputing the accuracy of the ledger balances indicated by the KRA; and
• after validation by the taxpayer and KRA, legacy balances will be migrated to iTax, following which the taxpayer will be required to address the legacy amounts.

It is interesting to note that the confirmation request will not constitute an assessment, according to the KRA. This accords with the law since the KRA may only issue or amend an assessment within the five years immediately following the last date of the reporting period to which an assessment relates. The exception is when there is gross or willful neglect, evasion, or fraud by, or on behalf of, the taxpayer.

Validation of input VAT credits on iTax

With a view to disallowing incorrectly claimed input VAT, the KRA is validating input VAT credits claimed by VAT-registered taxpayers to ensure they pay the correct VAT amounts. The KRA has indicated that the incorrectly claimed VAT stems largely from fictitious invoices, double claims on import entries or purchase invoices, post-dating of invoices, claiming of withholding VAT without declaration of corresponding sales, under declaration of outputs and/or overstatement of inputs and falsification of credit notes. It is self-evident that these instances would constitute fraud.

The KRA has already commenced validating the input VAT claims and some taxpayers have received notifications disallowing claims the KRA does not consider valid (in some instances for the entire input VAT claimed in a particular period).  In such cases, the KRA then issues an assessment for VAT, penalties and interest based on the adjustments made. The KRA has also indicated that it shall prosecute taxpayers where fraud is detected.