Taxpayers will be spared disruptive tax crackdowns after the Kenya Revenue Authority (KRA) shifted to a new compliance system that flags discrepancies early, allowing businesses sufficient time to address them before they are blocked from the filing system.
KRA acting Commissioner-General Lilian Nyawanda said the new approach aims to reduce disruption to compliant businesses while maintaining pressure on non-compliant ones ahead of the June 30 filing deadline.
The move follows backlash from the controversial ‘special table’ approach that KRA previously used to flag so-called missing traders -firms suspected of participating in fraudulent value-added tax (VAT) claims.
A ‘special table’ is an administrative mechanism designed to restrict VAT-registered taxpayers with poor compliance records, such as non-filers and non-payment cases, from filing returns.
The KRA said that while the system helped bring non-compliant taxpayers into the net, it also swept up thousands of compliant businesses that found themselves locked out of the tax system due to dealings with non-compliant partners.
‘The special table played its role, and we picked key learnings from the process,’ Dr Nyawanda said in an interview with the Business Daily.
‘But we reached a point where we needed to do away with it and allow taxpayers, based on those learnings, to work through the compliance journey.’
In March, KRA, in a rare move, admitted that the ‘special table’, a compliance tool, had been misused by its own compliance officers, and ordered the removal of affected taxpayers.
Early alerts
Initially designed to seal revenue leaks from the notorious ‘missing trader’ schemes – where fictitious invoices are used to claim VAT refunds – the taxman had resorted to the ‘watch list’ as the primary enforcement mechanism.
Businesses flagged under it were effectively locked out of filing VAT returns on the iTax platform, making other firms reluctant to trade with them since they could not claim input VAT.
In its place, KRA said it is deploying a more targeted and less disruptive model built around early visibility of taxpayer data. Individuals and businesses will be able to see transaction records held by the authority before filing returns, putting them under continuous, real-time scrutiny.
The system is already flagging inconsistencies, particularly among taxpayers who file nil returns despite having recorded transactions in KRA’s databases. Instead of triggering automatic penalties or system blocks, the taxman is sending alerts prompting taxpayers to review and correct their filings in advance.
‘We are exposing your details to you and communicating directly where there are areas you need to work on,’ Dr Nyawanda said. ‘So you’re able to check way in advance of filing and not be caught off guard.’
Soft approach
The shift represents a move toward what KRA describes as a more ‘conversational’ approach to tax compliance by engaging taxpayers earlier in the process rather than penalising them after the fact.
While the new model reduces the risk of abrupt disruptions that previously froze operations and strained cash flows for businesses, it also introduces a higher level of scrutiny, which places taxpayers under continuous monitoring through KRA’s data systems, such as the Electronic Tax Invoice Management System (eTIMS).
Dr Nyawanda acknowledged the complexity of the tax system and the need for closer engagement with taxpayers, noting that compliance is not always straightforward because the system may have errors or mismatches.
‘We want to walk the journey with taxpayers,’ she said. ‘Taxes are complex, and not everyone fully understands them. We want Kenyans to do business, make profits, but remain compliant.’
To support the shift, KRA has introduced new digital communication channels, including a WhatsApp-based AI assistant dubbed ‘Shuru’, allowing taxpayers to receive guidance and resolve queries in real time.