There are certain glaring issues that draw the attention of tax assessors. Whereas these areas do not necessarily indicate that a taxpayer is at fault, it is important for one to be always ready with explanation. As a rule, a taxpayer must always be conscious of the information that the KRA already has either from third parties or from the taxpayer himself. Where the taxpayer has inconsistencies in his own information or is obviously in the wrong, he should make all efforts to get that matter fixed before it generates into a tax dispute.
Here are some tips on areas where the taxpayer needs to be double sure;
- Inconsistencies between PAYE returns and Salaries and Wages in the annual returns (ITC) and Audited accounts
- Inconsistencies between monthly VAT returns and annual returns (ITC) especially sales and Purchases
- Bank statement details versus information in the annual returns (ITC) and Audited accounts
- Authenticity and completeness of accounting records
- The dates when Returns are filed
- Penalties outstanding and why they are imposed
- Withholding Tax certificates against the incomes declared in annual returns (ITC)
- Expenses claimed in annual returns (ITC) against withholding taxes charged- for expenses subject to withholding tax
- Tax Losses
- Excess input tax claimed over output tax leading to VAT refund position
- Transactions between company and its employees or directors
- Intra-group trading especially for Multi-National companies
- Any correspondence with KRA
The above list is not exhaustive but is intended to serve as a general guide on areas that are likely to be picked out in Tax audit.
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