The Finance Act 2023 has ushered in a new law with far-reaching implications for firms operating in high-risk tax underreporting industries. Under this legislation, such firms are now mandated to deduct and promptly remit withholding taxes within a tight five-day window following the initial deduction. The payments must be made through the Kenya Revenue Authority (KRA) I-Tax portal, generating a payment slip that can be presented to any KRA-approved bank for the settlement of overdue taxes.
Banks, among the key stakeholders affected by this legal change, are grappling with the newfound responsibility of swiftly handling tax remittances. Kennedy Mutsiya, Acting Kenya Bank Association spokesperson, lamented the impact of the law on banks, stating, “I pay interest every day and accrue interest on a daily basis. The new law does not look at payment and accrual differently.”
Before the enactment of the Finance Bill 2023, the existing law required the remittance of excise taxes by the 20th day of the subsequent month, except for items whose taxes were paid at the point of importation. Mutsiya further explained, “Before, I used to tell branches to tell me every month to process and remit the exercise duty, and I pay on the 20th day.”
The primary objective of this law is to combat tax underreporting, and hence the introduction of the stringent five-day limit for settling overdue taxes, a standard that parallels other high-risk sectors such as betting and gaming institutions, which remit taxes on a daily basis.
The Kenya Bankers Association expressed concerns over the additional responsibility of collecting and remitting taxes on behalf of the KRA. Banks are now facing the necessity of investing in new technology to meet the tight five-day deadline for tax submissions. “We have to invest in new technology to replace human resources to facilitate the administrative issue of five days’ remittance of tax,” cautioned Wilfred Alambo, Equity Bank Group tax manager.
Moreover, the financial burden imposed by this new law also raises concerns about potential job losses, as the introduction of new technology threatens to replace human roles previously involved in manual tax remittance processes.
