Penalties and interest of non-compilance

What is non-compliance?

1. -This is when a business neglects to register for VAT with a tax authority body.
2. -There may be various reasons as to why a company may refuse to register for VAT.
3. One of them is to evade tax. When a company is trying to avoid incurring cost of tax it may not register for VAT.
4. Secondly it may be due to the complexity that comes with the registration of VAT. The rules may be so strict and may require too much paper work with information hard to comprehend. This therefore may lead the company to not registering for VAT.

Penalties

1. When one fails to file his or her pay-as-you-earn (PAYE) on time he or she is required to in addition pay 25% of the tax due or 10,000 (whichever is higher)
2. When one fails to pay his or her PAYE on time the penalty will be liable to pay 5% of tax due and 1% interest every month.
3. When one fails to deduct the withholding VATand withholding rental income tax he or she is required to pay 10% of the amount of tax involved.
4. Late payment of any withholding tax, that is , withholding income tax, withholding VAT and withhold rental income, he or she is to pay 55 of the tax due.
5. Any late filing of MRI Returns results to one paying 5% of the tax due or the 2,000 whichever is higher individuals , but for non-individuals 5% or 20,000 (pay whichever is higher
6. Late payment of the MRI results to one paying 5% of tax due and an interest of 1% per month
7. Late filing of VAT returns then results to a penalty of 5% of the tax due or 10,000 and one is to choose the highest value
8. Late payment of VAT causes a penalty of 5% of tax due and 1% interest every month.
9. When one files income tax late of a company or partnership, they are to pay 5%vof tax due or 20,000 whichever is higher
10. When pays the incomes tax late for non-individual they are to pay 5%vof tax due and an interest of 1%per month
11. 1Any late payment of a stamp duty results to a penalty of 5% of duty payable
12. 1Any late filing of excise duty return results to one paying 5% of the tax due or 10,000 whichever is higher
13. 1Any KRA pin related offense results to a penalty of 2,000

Interest

1. Interest of failure to pay tax: If any tax that is imposed remains unpaid after the due dates as required by the tax authority, it will therefore attract interest. Interest will be charged on the amount due to be paid and in this case it is normally at a 5% rate.
2. Interest that is paid for undervaluing the tax payable. Failure to estimate tax well by the companies who pay in installment within the tax within the limits leads to underestimation therefore underpayment which will at the end attract interest.

Risks of non- compliance

1. It may lead to intensive auditing: once tax authority (KRA) detect any kind of irregularity in the compliance of VAT for a certain business that may request a thorough and intense audit. This kind of audits may be expensive cost more to the business and also take time for the employees. Furthermore, theses intense audits may reveal further irregularities which may increase the number of penalties. These irregularities may destroy the good image of the company to the public and hence may also decrease number of potential investors.
2. The claims may not be accepted by the government hence forcing the companies to pay repay thee reclaimed VAT which may result to financially disrupting their operations
3. If a company also refuses to register for VAT, it will miss the opportunity of some of the benefits of VAT.
4. There will be many administrative fines; if a company doesn’t uphold to the rules or requirements there will be consequences that will be mended for in financial terms

For additional information on penalties and interest of non-compilance:

1	https://www.kra.go.ke/business/business-compliance-penalties/business-how-to-file/business-offences-penalties

 

 

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