TAX ADMINISTRATION

RETURN OF INCOME
A taxpayer has a responsibility of informing the commissioner about the details of his tax
position relating to:
a) Taxable income or loss.
b) Sources of his income e.g. Business, employment etc
c) The claim for tax relief.
d) The payment of taxes at source, etc

A taxpayer will inform the Domestic Tax Department about his tax position through the
submission of the annual return of income (Return). A return is a standard form that is issued by
the DTD for completion by taxpayer in respect of loss/income for the year.

Three kind of taxpayer are required to submit a return of income:

i. Individual i.e. natural persons.
ii. Legal persons.
iii. Partnership (though partnerships are not taxable entities)

CONTENT OF A RETURN OF INCOME

 The date, stamp.
 The file number.
 The originating tax district.
 The full names and address of the tax payer.
 The source of income.
 Any interest on amount borrowed.

TYPES RETURNS
1. Instalment return
2. Self-assessment returns
3. Final returns (Abolished though still applicable for partnership and the only return for
partnership)

INSTALMENT RETURN
This was introduced in year 1990. It replaced provisional returns.

Unlike the provisional tax which was required to be submitted 3 months after the year end, the
instalment return is submitted as the year progresses. Incase of a normal tax payer, by 20th of 4 th
month, 20th of the 6th month, 20th of the 9th month and 20th of the 12th month, at the rate of 25% of
the estimated tax for each instalment. All these due dates are in the current year of income.

Where more than 2/3 of the income of the business is from agriculture (farming) the instalment
tax should be paid as follows:
 1st instalment by 20th of the 9th month – 75%
 2nd instalment by 20th of the 12th month – 25%

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Installment Tax Computation:
The current year’s installment tax is determined by multiplying the last year’s tax by a factor of
1.1 or 110%.
Example:
ksh
Last year’s corporate tax liability 300,000
Current year’s installment tax (last year’s x 330,000
110%)
Each installment 330,000/4 = 82,500

If the actual tax at the end of the year turns out to be ksh 395,000, then the balance of ksh 65,000
is paid at the time of filing the annual tax return, i.e by the end of the 4th month following the
accounting year end.

Penalty for not paying the tax by due dates is 20% of the outstanding tax. If nonpayment
continues, interest is charged of 2% per month on a cumulative basis.

SELF ASSESSMENT RETURN

A tax payer is required to compute own taxable income, tax payable and make payments in
accordance with his assessment. This tax is due by last day of the 4 th month after the accounting
year end.

Failure to submit a self-assessment return, C. D. T will issue an estimated assessment and charge
a penalty of 20% of tax due and an interest of 2% p.m. on tax due plus penalty as long as the tax
remains unpaid.

The self assessment return should be submitted by:-

 All liable body corporates
 Individuals with other income apart from employment
 All partnership i.e. only the income detail of partners is required.

FINAL RETURN
A final return is submitted by partnerships only. It is due by the end of the 4 th month following
the partnership’s accounting year end.

Since a partnership is not a separate taxable entity each partner will be required to submit his
own return of income as an individual.

The final return will contain:

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  The total income or loss of the partnership and how this was shared between the partners.
Supporting documents must be submitted alongside the return.
 A signed declaration that the return of income contains a full and true statement of a
partnership income or loss.

NOTICES OF ASSESSMENT
The commissioner shall assess every person who has income chargeable to tax as expeditiously
as possible after the expiry of the time allowed to that person under the Act for the delivery of
the return of income.

Where a person has delivered a return of income the commissioner may:-

1. Accept the return and deem the amount that person has declared as his self-assessment in
which case no further notification is required, or
2. If he has reasonable cause to believe that the return is not true and correct, he may determine
according to the best of his judgment the amount of true income of that person and assess
him accordingly.
3. Where a person has not delivered a return of income for a year of income, whether or not he
has been required by the commissioner to do so but the commissioner considers that the
person has income chargeable to tax for that year, he may according to the best of his
judgment determine the amount of income for that person and assess him accordingly.

SERVICE OF NOTICE OF ASSESSMENT

A notice of assessment is the tax bill which is issued by the commissioner of domestic taxes to
all tax payers for each year of income.

After the introduction of the self-assessment return, assessments only originate from tax payers
rather than the commissioner. This means that a person who is chargeable to tax is required to
submit a return with self-assessment.

APPELLATE BODIES
If the tax payer is dissatisfied with any decision from the commissioner regarding his objection,
he has a right to appeal to the following bodies:
 Local Committee
 The income tax Tribunal
 The High Court
 The Court of Appeal

Below is the procedure for an appeal:-

i. The tax payer must notify the Commissioner of Domestic Tax (C.D.T) of his intention to
appeal to the local committee by giving a notice within 30 days after receiving a notice of
assessment from the commissioner.
ii. The notice of intention to appeal must be copied to the clerk of the local committee.
iii. Copies of the memorandum of appeal and a statement of facts must be sent to the
commissioner.
iv. The taxpayer must submit the following documents to the clerk of the local committee

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 a) A memorandum of appeal. This will state the grounds of appeal and will be submitted
in the original 9 copies (one to the chairman and 8 to the members).
b) A statement of fact. This will give the sequence of events regarding the assessments
objection and the appeal. It shall disclose the date of the assessment being objected to
the date it was confirmed. The statement shall be in the original 9 copies.
c) A copy of the letter and the notice of the intention to appeal to the local committee
which was sent to the C.D.T.
d) A copy of commissioner’s decision against which the appeal is being lodged.

The clerk will not register a late appeal for hearing unless the tax payer is prevented from
lodging an appeal in time to the local committee due to reasons such as absence from Kenya,
sickness or any other reasonable cause.

LOCAL COMMITTEE
A local committee is a body appointed by the minister for finance to arbitrate between the
income tax department and the taxpayer. A local committee shall constitute a chairman and not
more than 8 other members appointed by the minister from the general public. They are laymen
as far as tax is concerned. They hold the office for a period not exceeding 2 years specified in the
appointment unless prior to the expirely of that period;

 The member resigns from the office by written notification signed by him and addressed
to the minister.
 Have failed to attend 3 consecutive
 A member being unfit to perform duties due to reasons of mental or physical disability.

TRIBUNALS
The minister for finance may by notice in the gazette establish a tribunal to arbitrate between the
tax payers and the income tax department. The tribunal shall consist of chairman and not less
than 2 members and not more than 4 other members appointed by the minister.

A member of tribunal shall hold office for the period not exceeding 2 years specified in his
appointment. The quorum for a meeting of a tribunal shall be chairman and 2 other members.

Where the taxpayer is not satisfied with the decision of the tribunal he can appeal to the high
court by giving a notice of 15 days after he has been served with the decision of the tribunal.
Such appeals will only be on the question of law.

APPEALS TO COURT OF LAW

Appeals to the high court will only be on the questions of law or mixed law and facts. For the
appeals to the high court, the appellant who could either be the CDT or the taxpayer must serve
the respondent with the intention to appeal to the court within 30days with decision from other
appeal bodies.

The appellant must file in court the following;

 Memorandum of appeal.

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  Statement of fact giving sequence of events leading to decision which is being appealed
against.

APPLICATION FOR RELIEF OF ERROR OR MISTAKE IN A RETURN

A tax payer can make an error or mistake when completing a return of income form e.g. wrong
figures of income resulting in excess taxes. The tax payers can make an appeal to the CDT for
the error or mistake to be rectified. This application is referred to as an application of relief or
error or mistake in return.

If the application is accepted the assessment is amended according so as to rectify the error or
mistake.

The time limit for such an application is 7 years after the year of income to which the error or
mistake relates.

ENFORCEMENT OF TAX PAYMENT

After the commissioner has imposed the relevant penalties and interests for late payment of tax,
he can enforce any of the following method to correct the tax:-
 Appoint a distraint agent
 Appoint an agent e.g. employer, bank
 Execute a charge or an encumbrance (i.e. restriction on sale) on the tax payer’s property
 Sue for tax unpaid.
 He can write off the tax.

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