During one of our taxpayer educátion sensitization forums, a taxpayer, whom for the purpose of this column I will call Jack, asked to talk to me over a critical matter which he said had been pressing him and his colleagues back at their work place for quite a long time. Jack wondered why he, as an employee, was required to declare his employment income earned over a given year of income and file the individual annual income tax return to the same effect.
He believes the monthly PAYE deduction by his employer is final as the employer declares, files and pays the tax on his behalf for the entire year. In fact, in his own words, the process of filing individual annual income tax returns is a replication of what employers do every month when they file Pay As You Earn (PAYE).
Jack’s concern epitomises sentiments of many taxpayers with employment income and who are required to file their individual annual income tax returns on or before June 30th, every year. The requirement by law for every individual taxpayer to file their individual annual income returns is founded on two major crucial reasons. First, in the case of a taxpayer with employment income, submission of individual annual income tax returns gives the Kenya Revenue Authority (KRA) an opportunity to verify if what the employer declared in his PAYE monthly submissions matches what the taxpayer with employment income has declared for a given year of income.
In case of a disparity between the two declarations, the necessary steps are taken to address the anomaly. This process further serves to enhance accountability and transparency so that we don’t have instances where an employer deducts PAYE from their employee’s incomes but fails to remit the deduction to KRA.
Secondly, filing of an individual annual income tax return provides an opportunity for employees with additional sources of income to declare the extra sources of income at the end of every year. Additional sources of income may include rental income, consultancy, farming or any other businesses. Such taxpayers are required to declare the additional income and pay the tax due by 30th April and subsequently file the return by 30th June. For individual taxpayers whose tax payable in a year is Ksh 40,000 and above, the tax should be paid in four equal installments and the balance paid by 30th April.
Monthly Rental Income (MRI) however is payable at 10% of the gross residential rent received on a monthly basis for each taxpayer (including employees) receiving a residential rent of Ksh 10 million and below in each year of income. Payment is due on or before every 20th of the month following the month rent was received.
According to the Income Tax Act, the filing season for individual annual income tax returns officially opens on 1st January and runs for six months up to 30th June. Is there, therefore, a reason to file your return late? The unanimous answer here is a NO. The long span over which the exercise takes place ensures that taxpayers get ample time to submit their returns.
Early filing of tax returns presents a load of benefits to individual taxpayers. For instance, when you start working on your return early, you will have enough room to seek clarification or any form of assistance from any of our service centres countrywide. In addition, filing early gives you the peace of mind you need to go about your daily business. When taxpayers file their tax returns early, they are also saved from hefty penalties. The Tax Procedures Act 2015 prescribes a Ksh20,000 penalty for any individual income tax return filed after the June 30th deadline and an interest of 1% of the tax due. The question, therefore is, why risk the penalty and interest yet the filing period is long enough for the exercise?
Employers, on the other hand, are key stakeholders in this crucial exercise. This is because apart from deducting, remitting and filing PAYE every month, they are required by law to issue tax deduction forms known as P9s to their employees after every end of the year. A P9 form guides the employee in filing their annual income returns. In the past, taxpayers who have on varying instances submitted their tax returns late have directed a pointing finger at their employers for late issuance of this requisite document.
It is, therefore, very essential for employers to issue their employees with P9 forms early to enable them submit their returns in good time. Experts such as Hakim & Co can help sort out tax related needs for both individuals and businesses.
Over the years, before KRA rolled out the phenomenal iTax platform, the filing season would be characterised by long queues especially as the deadline approached. In most cases, taxpayers would cheat the deadline by an eyelash-wide margin. However, since its rollout, iTax has not only revolutionised returns filing experience but also empowered the taxpayer to file their returns from any part of the world at any time.
In the spirit of facilitating all the taxpayers at all times and especially during filing seasons, KRA has so far enhanced its presence countrywide through establishment of service centres and desks at Huduma Centres. Working hours have also been extended at the centres for optimum service delivery.
Therefore, let us all honour this patriotic exercise and submit our tax returns in good time for the betterment of our nation.