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Penalties for VAT Non-Compliance and How to Respond

Penalties for VAT Non-Compliance and How to Respond

Failure to comply with VAT regulations in Kenya can lead to significant penalties, audits, and even legal consequences. Whether it’s late filing, under-declaring VAT, or incorrect invoicing, the Kenya Revenue Authority (KRA) has clear guidelines on penalties—and steps you can take to rectify mistakes.

Common VAT Non-Compliance Offences

  1. Late Filing of VAT Returns

    • Penalty: KES 10,000 or 5% of the tax due, whichever is higher.

    • Interest: 1% per month on unpaid tax.

  2. Late Payment of VAT

    • Interest is charged at 1% per month until the VAT is fully settled.

    • Continued non-payment may trigger debt recovery actions.

  3. Failure to Register for VAT

    • Businesses with a turnover above KES 5 million per year must register.

    • If you operate while unregistered, you may be penalized and required to pay VAT retrospectively.

  4. Understating Sales or Overstating Input VAT

    • If detected during an audit, this may attract penalties of up to 75% of the tax evaded.

    • Willful tax evasion can lead to prosecution.

  5. Issuing Invalid VAT Invoices

    • KRA requires that VAT invoices meet specific standards.

    • Non-compliant invoices may lead to disallowed input VAT claims and penalties.

How to Respond if You are VAT Non-Compliant

1. File Outstanding Returns Immediately

Log in to iTax and submit any pending VAT returns, even if the due date has passed.

2. Pay Penalties or Apply for Waiver

Settle any outstanding amounts. In some cases, KRA allows taxpayers to apply for a waiver of penalties and interestespecially if non-compliance was not intentional.

3. Amend Incorrect Returns

If you’ve made errors, you can amend returns within six months. Use the “Amend Tax Return” option on iTax.

4. Engage KRA Proactively

Respond to any notices or queries promptly. Delays may escalate the issue or attract additional penalties.

5. Consult a Tax Expert

Navigating tax compliance and audits can be complex. Working with a professional can save you time, money, and future risk.

Need Help with VAT Compliance?

We offer expert VAT services—from return filing and audits to penalty waivers and KRA engagement.

📍 Biashara Plaza, Moi Avenue, Nairobi
📧 info@blueoceanoutsource.co.ke
📞 +254 729 842 847

Talk to us today to safeguard your business from VAT penalties.