Kenya Revenue Authority's (KRA) notices to taxpayers have caused panic and outcry among hundreds of people who claim to have sent tax arrears billings that are as old as 20 years.
Recipients of the notifications demanding payment within two weeks blame KRA for failing to accurately transfer taxpayers' information from old manual or semi-automated platforms to the current iTax system.
Tax advisory firms Thursday said tax demand letters to their clients have been piling up in the past three weeks even as KRA insisted that it is not raising tax assessments but merely tidying up taxpayers' ledgers in its system.
"There appears to be omissions and errors on migration of data in a number of cases leading to differences between the KRA and taxpayers records," audit firm PricewaterhouseCoopers (PwC) Kenya said.
"Consequently, a number of taxpayers are receiving tax demand letters in relation to corporate income, VAT and withholding tax arrears. In some cases, the tax demands relate to periods as far back as 20 years ago."
Director of tax at Grant Thornton Kenya, Samuel Mwaura, confirmed that many of the audit and advisory firm's clients have received such notices.
He linked this to KRA's move to use VAT auto assessment (VAA) to detect inconsistencies between purchase and sales invoices declared in the VAT returns.
"Our clients have received a lot of demand letters and this is causing panic in the market. VAA was a well thought out process, but not configured in the right way," said Mr Mwaura.
He gave the example of a buyer who declares input VAT before the seller declares the same, causing the system to treat the declaration as fictitious yet in law firms have up to six months to declare input VAT.
"Who will respond to all these demand letters yet they are system generated? And the system does not even allow one to amend declarations that are above six months," said Mr Mwaura.
PwC warns that the tax demands and payment default notices pose tax risks to businesses given that records dating as old as 20 years may not be readily available for companies to respond.
Tax Procedures Act, 2015 obligates a taxpayer to maintain tax-related documents for up to five years from the end of the reporting period, within which the KRA commissioner has powers to amend an original self-assessment.
"Taxpayers are not required to maintain tax records for a period longer than five years from the end of the reporting period (albeit there is an exception for fraud)," notes PwC.