Top Tax Filing Mistakes and How to Avoid Them in Kenya
Filing taxes can be a daunting task for many individuals and businesses in Kenya. While the process is essential to comply with the law, many taxpayers make common mistakes that can lead to penalties, delays, or even audits by the Kenya Revenue Authority (KRA). Understanding the common errors and how to avoid them is crucial for a smooth tax filing experience. In this guide, we’ll cover the top tax filing mistakes in Kenya and provide practical tips on how to avoid them.
1. Failure to File Taxes on Time
One of the most common mistakes in tax filing is failing to meet the tax return deadline. The deadline for filing personal income tax returns in Kenya is typically on or before June 30th every year. For businesses, the deadline may vary depending on their financial year. However, many taxpayers forget or procrastinate, leading to late filing and hefty penalties.
How to Avoid It: To avoid this mistake, mark your calendar well in advance and set reminders. Additionally, the KRA’s online portal (iTax) provides taxpayers with a user-friendly platform to file returns before the due date. Filing early not only saves you from penalties but also ensures that you have enough time to address any issues that may arise.
2. Incorrect or Missing Personal Information
Another frequent error is submitting inaccurate personal information, such as the wrong KRA PIN, incorrect bank details, or misspelled names. These mistakes can cause your return to be rejected or delayed, which could lead to legal complications.
How to Avoid It: Before submitting your return, carefully double-check your personal information, including your KRA PIN, ID number, and bank account details. It’s also a good idea to keep your KRA PIN updated on the iTax system to ensure that all records are current.
3. Failure to Report All Income
Many taxpayers in Kenya fail to report all of their income, whether from employment, business, or other sources such as freelance work, rental income, or dividends. Omitting any income on your tax return is considered tax evasion and can result in hefty fines and penalties.
How to Avoid It: Ensure that all sources of income are properly declared in your tax return. For employees, check that your employer has submitted the correct PAYE deductions. For businesses or freelancers, keep accurate records of your earnings and expenses to ensure you report everything accurately.
4. Incorrect Deductions and Allowances
Kenya’s tax laws provide for various deductions and allowances, such as those for pension contributions, medical expenses, and dependents. However, many taxpayers either claim incorrect deductions or miss out on deductions they’re entitled to, leading to either overpayment or underpayment of taxes.
How to Avoid It: Before claiming any deductions, familiarize yourself with the current tax laws regarding allowable deductions and consult with a tax professional if necessary. Keep receipts and supporting documents for all deductions you plan to claim. For example, if you’re claiming a tax relief for dependents, ensure you have the proper documentation proving their status.
5. Misclassification of Taxable Income
Some taxpayers may misclassify their income or expenses, leading to an incorrect tax liability. For example, some may mistakenly classify business income as personal income or claim non-taxable expenses as deductible.
How to Avoid It: Ensure you understand the differences between various income categories and which ones are taxable. For example, salary income is subject to PAYE, while business income may be taxed differently. If you’re unsure, it’s advisable to seek professional guidance to help you navigate the tax classification.
6. Not Keeping Proper Records
Kenyan tax laws require that businesses and individuals maintain accurate and complete records of all their financial transactions. Failure to keep proper records can lead to mistakes in tax filings, and the KRA may disallow certain expenses if they are not substantiated.
How to Avoid It: Always maintain clear and organized records of your income, expenses, and tax documents. For businesses, this includes invoices, receipts, and bank statements. Keeping these records not only ensures accuracy during tax filing but also helps in case of an audit by the KRA.
7. Ignoring Tax Obligations for Foreign Income
Many Kenyan taxpayers fail to report income earned abroad or from foreign investments. However, under Kenyan tax laws, citizens are required to report and pay taxes on worldwide income, subject to certain exemptions.
How to Avoid It: If you have foreign income or investments, ensure you are aware of the reporting requirements for foreign income. The KRA’s iTax system provides guidance on how to report foreign income. You may also be eligible for tax relief under double tax treaties, so it’s important to check if you’re eligible for any exemptions or credits.
8. Underestimating Your Tax Liability
Some taxpayers make the mistake of underestimating their tax liability, leading to penalties for underpayment. This often happens when taxpayers neglect to account for all sources of income or fail to update their filing status after changes in circumstances, such as an increase in income.
How to Avoid It: Estimate your tax liability accurately by considering all sources of income and deductions. Use online tax calculators or consult with a tax expert to ensure that you’re making an accurate estimate. If you discover that you owe more taxes than you initially thought, it’s best to pay the balance before the deadline to avoid penalties.
9. Not Filing for Tax Reliefs and Credits
Kenya’s tax system offers various reliefs and credits to reduce your overall tax burden, such as tax relief for children, individuals with disabilities, and for tuition fees. Failing to claim these reliefs means you might end up paying more tax than necessary.
How to Avoid It: Take the time to explore all available tax reliefs and credits that you may be eligible for. Ensure you meet the criteria for each relief and include them in your tax return.
Conclusion
Filing taxes in Kenya doesn’t have to be overwhelming, but avoiding common mistakes is essential for a smooth process. By being diligent, keeping accurate records, and seeking professional advice when necessary, you can ensure that your tax filing is accurate and timely. Remember, the KRA provides a wide range of resources to help you navigate the tax system, so take full advantage of these tools. By staying informed and following best practices, you can avoid penalties and ensure compliance with Kenyan tax laws.
