In the dynamic landscape of taxation, businesses often find themselves grappling with complex tax compliance requirements. In response to this challenge, tax authorities around the world have introduced voluntary tax disclosure programmes (VTDPs) to incentivise taxpayers to come clean about previously undisclosed tax liabilities. These programmes offer an opportunity for businesses to rectify past errors, mitigate penalties, and foster a culture of tax compliance. However, navigating VTDPs requires careful consideration of eligibility criteria, disclosure requirements and potential implications.

VTDPs are initiatives launched by tax authorities to encourage taxpayers to voluntarily disclose previously undeclared or underreported tax liabilities. These programmes typically offer relief from penalties and interest in exchange for full disclosure and payment of outstanding taxes. By participating in VTDPs, businesses can rectify past non-compliance, avoid harsh penalties and restore their tax compliance standing.

The Kenya Revenue Authority (KRA) VTDP, effective from 1st January 2021 to 31st December 2023, provided a framework for taxpayers to disclose tax liabilities accrued in the five-year period preceding 1st July 2020. Eligible taxes included individual income tax, corporate tax, PAYE, withholding taxes, capital gains tax, VAT, excise duty, turnover tax and monthly rental income tax.

While VTDPs offer a valuable opportunity for taxpayers to regularise their tax affairs, certain eligibility criteria and exclusions apply. Taxpayers under audit, investigation or litigation for undisclosed tax liabilities are generally ineligible for VTDP participation. Additionally, VTDP does not apply to cases where taxpayers seek refunds or adjustments resulting in tax credits or carried forward losses.

The recent tax dispute between Highlands Drinks Limited and the KRA highlights the importance of accurate tax reporting and transparent engagement with the tax authority. Despite initially participating in the VTDP and declaring an owed amount, Highlands Drinks found itself embroiled in a dispute over discrepancies in tax calculations. The case emphasises the need for businesses to maintain meticulous records, adhere to tax regulations and engage proactively with the tax authority to avoid disputes and ensure compliance.

In navigating VTDPs and engaging with KRA, businesses can adopt several best practices to enhance compliance and mitigate risks:

• Thorough record-keeping is essential for accurate tax reporting and compliance. Businesses should maintain comprehensive records of transactions, sales volumes, inventory and other relevant financial data.
• Businesses should proactively assess their tax liabilities, identify potential areas of non-compliance and take corrective action where necessary. Participation in VTDPs can offer a pathway to rectify past errors and mitigate penalties.
• Transparent and open communication with KRA is crucial for building trust and resolving disputes effectively. Businesses should engage proactively with the tax authority, provide timely and accurate information, and address any queries or concerns promptly.
• Taxation can be complex, and seeking professional advice from tax consultants or legal experts can help businesses navigate VTDPs and ensure compliance with applicable regulations.

Voluntary tax disclosure programmes offer businesses an opportunity to rectify past non-compliance, mitigate penalties, and foster a culture of tax transparency and accountability. However, navigating VTDPs requires careful consideration of eligibility criteria, disclosure requirements and potential implications. By maintaining accurate records, proactively assessing tax liabilities, and engaging transparently with tax authorities, businesses can navigate VTDPs effectively and ensure compliance with tax regulations.

While VTDPs present an opportunity for businesses to rectify past non-compliance, it is essential to approach them with diligence, transparency and a commitment to compliance. By adhering to best practices and engaging proactively with the tax authority, businesses can navigate VTDPs successfully and strengthen their tax compliance framework in the long term.