Recovery of revenue after audit

Introduction

After the auditors issue the final report on the audit they carried out on client’s
declaration of duty, the follow up step is carried out. This is the process of recovery of
additional taxes which the auditors realised the client had not paid after the audit. Since the
purpose of post clearance audit is to assess compliance of clients to customs requirements and
policies any loophole found in terms of unpaid taxes is followed up immediately the final
report is submitted to supervisor.

Follow up activities

The auditor issue a demand note or assessment to the tax payer so that the client can
pay for additional taxes resulting from the post clearance audit .The demand note is addressed
to the tax payer indicating the time frame within which to pay the taxes .The additional taxes
could be as a result of the client billing being short levied , having evaded payment of taxes
willingly , wrong demand of duty drawback , submission of under-invoiced documents or
even wrong classification of goods leading to inaccurate tariff number and duty rate.

The legal frame work for the follow up task on recovery of revenue is on the section
135 of the EACCMA 2004, which states that revenue should be demanded from the tax payer
within 30 days from the date of the service of the demand note. Section 135 (I) states where
any duty has been short levied or erroneously refunded then the tax payer who has paid the
short levied or to whom the refund was erroneously been made shall on demand by the proper
officer, pay the amount short levied or repay the amount erroneously refunded as the case
may be, and any such amount may be recovered as if it were duty to which the goods in
relation to which the amount was short levied or erroneously refunded as the case may be
were liable.

Where a demand is made for any amount pursuant to subsection (I) , the amount shall
be deemed to be due from the person liable to pay it on the date on which the demand note is
served upon him or her and if payment is not made within thirty days of such service or such
further period as the commissioner may allow , a further duty of a sum equal to five percent
of the amount demanded shall be due and payable by the tax payer by way of a penalty and a
subsequent penalty of two percent for each month which he or she defaults.
 The proper officer shall not make any demand after five years from the date of the
short levy or erroneous refund as the cost may be unless the short levy or erroneous refund
had been caused by fraud on the Part of the person who should have paid the amount short
levied or to whom the refund was erroneously made as the case may be.

The proper officer should maintain a proper record of the debt in the respective
department in an aged debt analysis. This will facilitate follow up effectively .he should also
take note of all the commitment letters issued to the tax payer by the Kenya revenue authority
concerning post clearance debt recoveries . He should continue making payment follow up
within the time frame of thirty days stipulated by law.

In situations where the tax payer defaults payment with the time frame, recovery
measures should be used after expiry of this period as stipulated in sections 130 and 131 of
EACCMA 2004. Sections 130 states that recovery of duty by distress for any goods for which
duty is payable by legal proceeds brought by the partner state. Goods having duty due and
any other goods imported afterwards shall be subject for such debt and may be detained by
the partner state until duty is paid.

If the duty is not paid within two months after the goods have been detained they may
be sold to meet the duty due. In situations where duty payable or penalty is not paid after one
month from due date, the commissioner may authorize distress to be levied upon goods, ,
material for manufacturing or plant of a factory , premises , vehicles or other property ,
animals which are in possession of the owner , agent or any other person acting on his
behalf .

The commissioner may also require the person who is an owner of land or buildings
in a partner state and fails to pay any duty due , to apply to registrar of lands for the land or
buildings to be the subject of security for the duty due as specified in the notice .This is as
stated in section 131 of EACCMA 2004.When the payment is done of the whole amount
secured , the commissioner by notice in writing to the registrar of lands , cancels the direction
and the records the cancellation without fee.

If there are any debt write offs that the tax payer deserves, the proper officer or
auditor should make submissions to the commissioner following the right procedure and
channel. This is important to account for any revenue and taxes due.
 Conclusion

The recovery of revenue after audit is done in the proper and efficient way as directed
by laws and regulations in EACCMA 2004.Every tax due should be accounted for and
collected from tax payer through correct means and eve through distress in cases where tax
payer defaults. All these measures and actions are taken by customs administrations to collect
revenue which is critical for developing economy of Kenya.
Reference