New proposed deadline durations of filing KRA returns

Treasury Cabinet Secretary John Mbadi has proposed sweeping changes to Kenya’s tax administration system.

One of the changes being new filing deadlines that would require tax payers with nil returns to submit their annual declarations just one month after the end of the tax year.

This proposal contained in the 2026/2027 budget policy highlights seeks to give the Kenya Revenue Authorities (KRA) enough time to verify and validate tax returns before that start of a new fiscal year.

Under the proposed changes, taxpayers filing nil returns would be required to submit them within one month after the end of the year of income. 

While individuals whose earnings are fully taxed at source , including salaried employees earning employment income only, would be required to file their returns within four months after the end of the year of income, while all the other tax payers would continue filing their returns by June 30.

‘’Currently, the deadline for filing tax returns is 30th June of every year for all categories of income, which leaves no room for verification and validation of the filed returns before the commencement of another financial year,’’Mbadi stated. 

According to the CS, these changes would create more time for the team in the KRA to thoroughly scrutinize the reports submitted.

‘’To provide sufficient time for verification and validation of returns,I  propose revisions to the timelines for filing individual income tax returns,’’ he said.

The proposed changes are expected to affect a large number of Kenyans who file nil returns annually as part of their routine to comply with the tax regulations.

These proposed changes on the duration of filing returns are among the many plans aimed at tracking down the existing revenue leakages and expanding the government’s tax base.

According to Mbadi, the current legal framework allows some transactions involving Kenyan assets to escape taxation when structured through foreign entities.

To close the loopholes, the treasury CS proposed amendments to ensure that gains arising from the transfer of Kenyan assets attract tax regardless of where the transaction is executed or where the beneficial owners are situated.

‘’Currently, gains arising from offshore transfers where the value of the transferred shares is delivered from assets located in Kenya  are not taxed,’’ Mbadi said.

The government is also targeting companies that retain profits for prolonged periods instead of distributing them to shareholders.

According to the CS, some companies have been applying indefinite retention of profits as a means of delaying payments of dividend taxes.

‘’When companies make profits, those profits should find their way back to shareholders within a reasonable time.Currently, some companies have been holding back their profits indefinitely simply to defer paying dividend tax. This is a loophole that needs to be addressed,’’ he said.

The unclear circumstances existing within the legislation had created uncertainties around the taxation of software related payments, interchange fees and merchant service charges.

In order to resolve this, the Treasury seeks to modernise tax laws to keep pace with technological advancements that have transformed cross-border payments, digital commerce and  software distribution.

‘’Rapid advances in technology have transformed the way businesses make payments,distribute software and provide services across borders. However the current Income Tax Act provisions do not clearly address the tax treatment of certain payments,’’ he said. 

The government has further set its eyesight on the country’s growing gambling industry ,arguing that winnings from betting and related activities should be treated like any other taxable incomes.

‘’Winnings from gambling are income, and like any other income, they should be taxed,’’ CS Mbadi stated.

The budget therefore proposes the introduction of withholding tax on winnings from gambling and lotteries.