KRA audits

Last updated October 19, 2024

The Kenya Revenue Authority (KRA) is conducting more tax audits like never before. And this has been made possible by KRA's massive investment in advanced technology, intelligence and data sharing with other agencies. 

If you happen to receive an audit query from KRA, my advice is you respond to it promptly and tactfully and even seek help from a qualified tax accountant if needed. 

Here are 10 events that may trigger KRA to audit your tax affairs

1. Filing NIL return or not filing tax returns at all

2. Failure to pay instalment taxes and failure to pay the balance of taxes due on returns may also be causes for an audit.

3. Non-registration of VAT yet you have a turnover higher than Ksh. 5m p.a.

4. Differences between sales declared under VAT and sales declared under end year income tax return

5. Significant variances. Eg

   • Variance between salaries claimed for income tax purposes and salaries declared for PAYE purposes for a particular financial period. 

   • Variances between your gross profit margins and industry margins can be a concern. (for example, profit markups for retail shops are normally between 10% - 20%)

6. Reporting losses year in year out can also be a red flag.

7. Cross audits, which are triggered by information obtained from audits of other large companies, may also be conducted.

8. Reports of tax evasion schemes from disgruntled employees, dismissed staff, friends, or spouses. This has even been more incentivised by giving whistleblower a reward.

9. Information gathered by KRA's tax base expansion unit or intelligence unit. KRA is constantly fetching data from other government agencies.

10. Publicity in the media, which can be followed by a tax investigation

Conclusion

It is important to remember that receiving an audit query from KRA does not necessarily mean that you have done anything wrong. However, you should still take it seriously and respond accordingly in order to avoid any potential penalties or legal consequences.