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Imagining a World Without Tax Penalty Waivers

Lina Omole

The public and business community have received the recently published Finance Bill 2023 with mixed emotions. The Bill contains perhaps the largest number of proposed amendments in any one budget cycle. If passed in its current form, it will no doubt have significant implications for taxpayers.


One of the proposals is a complete abolition of waiver of penalties and interest. Currently, the law allows the Commissioner, with the Cabinet Secretary’s approval, to abandon taxes, or waive all or part of any penalties and interest where it is impossible to recover an unpaid tax because of undue expense, difficulty, or inequity in recovering the tax or due to consideration of hardship and equity on the part of the taxpayer.

Nearly all tax systems have some form of tax penalties and interest regime intended to protect the present value of tax revenue that is paid late and deter non-compliance. The design of tax penalties and interest ought to be such that the taxpayers’ interest is adequately protected. International best practice in relation to this include clarity in the computation of the penalties and interest, corresponding right to be compensated in case of overpayment of tax and fairness and equity in imposition of penalties and interest.

The idea of waiver stems from the principle of fairness and equity since not every tax offence is the same. Offences range widely from unintentional error on one hand and organised economic crime, aggravated tax evasion, and elaborate schemes of concealment on the other hand. Furthermore, some penalties and interest arise from circumstances beyond the control or due to no error on the part of the taxpayer, such as where there are differences in interpretation of tax law; the revenue authority itself sometimes revises positions previously taken on issues, leaving the taxpayer with underserved penalties. There are also multiple instances where the revenue authority’s iTax system has generated erroneous penalties and interest.

For a penalties and interest regime to be effective, it should observe these varying degrees of offence in its deterrent effect. Minor non-compliance offences, particularly where they arise without intent such as failure to provide required information; document or return; register for tax purposes; and keep records, keeping incorrect records, or non-payment should generally be eligible for waiver of any accruing penalties and interest, to the extent that imposition of the same would result in unfairness, inequity, or hardship on the part of the taxpayer, or other reasonable grounds. Waiver of tax penalties and interest in such cases is usually left at the discretion of the revenue authority.

Kenya’s penalty and interest regime has for the most part, complied with these general principles. The proposal to remove the Commissioner’s direction to grant waiver will be a major departure and is likely to result in inequity for taxpayers who fail to comply for reasonable cause.

However, there is a case to be made for the removal of discretion from tax enforcement since this power has often been abused. The revenue authority, in February 2023, issued a press release whose intention was understood to allow for review of the administrative framework in respect of among other issues, the right to waiver of penalties and interest.

With this proposal, it appears that the policymakers have opted to close the door on waivers altogether, instead of focusing on tightening the administrative processes. This unfairly punishes all taxpayers when in fact the abuse of discretion must have been facilitated by the National Treasury and the revenue authority officials in the first place.

To give taxpayers a soft landing, the Finance Bill 2023 has proposed an amnesty on penalties and interest in respect of taxes that were due before 31 December 2022. Any penalties accruing thereafter will be payable alongside principal tax without the option of waiver, irrespective of the facts and circumstances of the non-compliance.

However, a complete departure from discretion in as far as waivers are concerned may be ill-advised. Where discretion is availed in limited and clearly prescribed circumstances and with appropriate accountability mechanism, discretion can be effective in giving the revenue authority leverage to tailor sanctions to individual taxpayers thus achieve the objective of fairness and equity in taxation.

Perhaps it is time to consider removing the National Treasury and the revenue authority from the process in respect of waivers altogether because of their bias towards maximising collection. This discretion can then lie with a neutral arbiter such as the Tax Appeals Tribunal, which can consider representations from both parties and arrive at a balanced decision.

The National Treasury and Parliament should re-evaluate this proposal, since in my opinion, a complete abandonment of discretion to waive penalties and interest could inadvertently increase the tax burden and impede taxpayers’ ability to not only meet their obligation but also make profits, which is necessary for reinvestment to generate much needed tax revenue for the Government.

Lina Omole is a Senior Manager with Deloitte East Africa. The views presented are her own and not necessarily those of Deloitte. She can be reached at