All the persons with KRA personal Identification numbers are required to file returns on annual basis. Of the 6.1 Million registered tax payers in 2021, 5.5 Million filed their returns. That looks impressive however, filing of returns does not necessarily translate to payment of taxes. Some registered taxpayers file nil returns.
The Tax filing system I-tax allows a taxpayer to file returns that are not accompanied with tax payment popularly known as Nil Returns. Allowing registered persons to file nil returns is well intended and lawful. There are many cases whereby a person is required to have a PIN like even opening a bank account, that does not guarantee income and thus it’s only fair to allow filing nil returns. Registered persons might also run out of income.
Filing nil return is the easiest process on I-tax, a quick way of silencing the nudge to file tax returns. No records are required, no details have to be provided, no payment is required, and a nil return requires nothing really. It’s however important to consider what filing nil returns means. For a good reason, the I-tax systems asks nil filers to confirm that they have no income. The response “return filed successfully” is so satisfying but it does not mean a tax matter has ended, it might be the beginning.
Filing a nil return means that a taxpayer has not engaged in any gainful activity for a full year. It may be true but that’s truth that the taxman might want to take with a pinch of salt. Being active economically means that one is operating a bank account, has suppliers, landlords, or is paying bills and many other activities. These transactions with third parties leave a trail of information and is no brainer that with Artificial intelligence all this information can be reconstructed. Filing a nil return amounts to offering ones account for profiling.
Overtime the taxman has been watching the increasing trend of nil filers with a lot of concern. In 2017, the nil filing feature was temporarily suspended from I-tax purposely to discourage nil filers. In 2018, the system was upgraded to require taxpayers to declare that they have no source of income. In 2021, the chief taxman indicated that the period for filing nil returns shall be limited to three years. Unless a taxpayer is so sure that there are absolutely no taxes pay, nil return can be unsafe harbor. Nil return is easiest to file but also the most glaring compliance case to pick.
All said, the law must always allow filing of nil returns. Genuine taxpayers inadvertently get in to seasons of no economic activity. When the situation is temporary taxpayers must not ignore their obligation but file a nil return. Where the situation is expected to last for successive filing periods, tax payers are advised to apply for dormancy of their PINs. If the situation is permanent the law permits deregistration of a taxpayer and effectively discharge from all obligations.