Tax Penalties Guide
Comprehensive guide to Kenya's tax penalties. Understand violations, calculate penalties, and ensure compliance to avoid costly mistakes.
Understanding Tax Penalties
Key principles and penalty structures in Kenya
Kenya Revenue Authority (KRA) imposes penalties to ensure tax compliance and deter violations. Penalties vary based on the type of tax, severity of violation, and whether it's a first-time or repeat offense. Understanding these penalties helps you maintain compliance and avoid unnecessary costs.
Late Filing Penalties
Range from 5% to 25% of tax due, with minimum amounts specified for different tax types.
Interest on Overdue Tax
2% per month (24% annually) charged on unpaid tax from due date until full payment.
Administrative Penalties
Fixed amounts for specific violations like failure to register, maintain records, or comply with procedures.
Penalty Calculator
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Late Filing Penalty Calculator
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Penalties by Tax Type
Comprehensive penalty structures for all tax types
Late Filing of P9A Returns
Monthly Returns
Penalty for filing P9A returns after the 9th of the following month. The penalty is 25% of the tax due or KSh 10,000, whichever is higher.
Additional Information:
- Interest at 2% per month on unpaid tax
- Penalty applies even if no tax is due
- Nil returns must still be filed on time
- Repeat offenses may result in business closure
Late Payment of PAYE
Tax Payment
Interest charged at 2% per month (or part thereof) on unpaid PAYE from the due date until full payment.
Calculation Example:
- Tax due: KSh 100,000
- Late by 2 months: 2% × 2 = 4%
- Interest: KSh 100,000 × 4% = KSh 4,000
- Total payable: KSh 104,000
Failure to Issue P9 Forms
Annual Requirement
Penalty for failing to issue P9 forms to employees by 31st January of the following year.
Requirements:
- P9 forms must be issued by 31st January
- Forms must contain accurate information
- Electronic copies acceptable if properly transmitted
- Penalty applies per employee not issued
Late Filing of VAT Returns
Monthly Returns
Penalty for filing VAT returns after the 20th of the following month. The penalty is 5% of the tax due or KSh 10,000, whichever is higher.
Key Points:
- Due date: 20th of following month
- Minimum penalty: KSh 10,000
- Interest: 2% per month on unpaid tax
- Zero-rated supplies must still be reported
Failure to Use eTims
Electronic Invoicing
Penalty for VAT-registered businesses that fail to use the Electronic Tax Invoice Management System (eTims) for issuing invoices.
eTims Violations:
- Issuing manual invoices: KSh 50,000
- Failure to transmit data: KSh 100,000
- System manipulation: KSh 500,000 + prosecution
- Operating without registration: Business closure
Under-declaration of VAT
Tax Evasion
Penalty for deliberately under-declaring VAT liability or failing to account for all taxable supplies.
Consequences:
- Penalty: 25% of under-declared tax
- Interest: 2% per month from due date
- Possible criminal prosecution
- VAT registration cancellation
Claiming False VAT Refunds
Fraudulent Claims
Severe penalty for submitting false documents or inflated claims for VAT refunds.
Legal Consequences:
- Penalty: 50% of false refund claimed
- Criminal prosecution possible
- Permanent VAT registration cancellation
- Asset seizure and auction
Late Filing of Annual Returns
Annual Returns
Penalty for filing corporation tax returns after 6 months from year-end or extended deadline.
Filing Requirements:
- Due: 6 months after year-end
- Extension possible with application
- Penalty: 25% of tax or KSh 20,000 minimum
- Interest: 2% per month on unpaid tax
Failure to Pay Advance Tax
Installment Payments
Penalty for not paying quarterly advance tax installments on estimated annual liability.
Advance Tax Schedule:
- 1st installment: By 20th April (25%)
- 2nd installment: By 20th June (25%)
- 3rd installment: By 20th September (25%)
- 4th installment: By 20th December (25%)
Transfer Pricing Violations
Related Party Transactions
Penalty for not maintaining arm's length pricing in related party transactions or failing to prepare transfer pricing documentation.
Documentation Requirements:
- Master file for multinational groups
- Local file for significant transactions
- Economic analysis and benchmarking
- Penalty: 30% of additional tax assessed
Late Remittance of WHT
Monthly Remittance
Penalty for late remittance of withholding tax deducted from payments to suppliers, contractors, or service providers.
Remittance Schedule:
- Due: 20th of following month
- Applies to all WHT deducted
- Penalty: 25% of tax or KSh 10,000
- Interest: 2% per month on unpaid tax
Failure to Deduct WHT
Deduction Requirement
Penalty when a withholding agent fails to deduct the required withholding tax from payments subject to WHT.
Withholding Requirements:
- All payments above KSh 24,000 annually
- Resident rates: 5-20%
- Non-resident rates: 10-30%
- Agent liable for tax + 10% penalty
Incorrect WHT Certificates
Documentation
Penalty for issuing incorrect or fraudulent withholding tax certificates to payees.
Certificate Requirements:
- Must be issued within 30 days
- Accurate amounts and tax rates
- Proper payee identification
- Signed by authorized person
Turnover Tax Violations
SME Tax
Penalties for turnover tax violations including late filing, under-declaration, or exceeding turnover limits.
Common Violations:
- Late filing: 20% of tax or KSh 5,000
- Exceeding KSh 50M turnover: VAT registration required
- Under-reporting turnover: 25% penalty
- False declarations: Prosecution possible
Digital Service Tax Penalties
Technology Tax
Penalties for non-compliance with Digital Service Tax on income from digital services provided in Kenya.
DST Requirements:
- Rate: 1.5% of gross transaction value
- Monthly filing by 20th of following month
- Registration required for qualifying services
- Late filing penalty: 25% of tax due
Excise Duty Violations
Specific Goods
Penalties for excise duty violations including manufacturing without license, under-declaration, or illegal importation.
Excise Penalties:
- Manufacturing without license: KSh 500,000
- Under-declaration: 25% of duty + goods seizure
- Late payment: 2% per month interest
- Smuggling: 25% of value + prosecution
Failure to Register for Tax
Registration
Penalty for conducting business that requires tax registration without obtaining the necessary PIN or tax registrations.
Registration Requirements:
- KRA PIN for all taxpayers
- VAT registration if turnover exceeds KSh 5M
- PAYE for employers
- Advance tax for certain businesses
Poor Record Keeping
Documentation
Penalty for failure to maintain proper books of accounts, records, or documents as required by tax laws.
Record Requirements:
- Books of accounts for 5 years
- Supporting documents and receipts
- Bank statements and reconciliations
- Employee records and payroll
Obstruction of KRA Officers
Non-cooperation
Penalty for obstructing, hindering, or refusing to cooperate with KRA officers during audits or investigations.
Cooperation Requirements:
- Allow access to business premises
- Provide requested documents
- Answer questions truthfully
- Assist in audit procedures
Filing False Information
Fraudulent Returns
Severe penalty for deliberately filing false tax returns or providing fraudulent information to KRA.
Criminal Consequences:
- Penalty: 50% of additional tax
- Criminal prosecution possible
- Imprisonment up to 10 years
- Business closure in severe cases
Penalty Prevention Guide
Best practices to avoid tax penalties
Compliance Calendar
Maintain a comprehensive tax calendar with all filing and payment deadlines. Set up automatic reminders and file early to avoid last-minute issues.
| Tax Type | Due Date | Frequency |
|---|---|---|
| PAYE | 9th of following month | Monthly |
| VAT | 20th of following month | Monthly |
| WHT | 20th of following month | Monthly |
| Corporation Tax | 6 months after year-end | Annual |
Compliance Tools
Use technology and professional services to ensure accurate and timely compliance.
Pro Tip: Voluntary Disclosure
If you discover errors in past filings, consider voluntary disclosure to KRA. This can significantly reduce penalties and show good faith in correcting mistakes.
Related Resources
Additional tools and information
Need Immediate Help?
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