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Millennials caught in taxman’s trap

Tonny Watuka @PeopleDailyKe

This year has so far been an amazing one but not without the tax authorities across the world tightening noose on tax evaders. Millennials, a name tag generally given to individuals born between early 1980s and early 2000, have not been an exception.

These individuals are creating an unprecedented paradigm shift in both developed and emerging markets with not only creation of some of the world’s blue-chip technologies but also involvement in some of the world’s most dubious activities such as underworld hacking.

In Kenya, most millennials are either students, unemployed, newly employed, novice investors trying their hand at various business activities, some of which end up being successful and others not so successful.

Notably, millennials have lately evolved to be masters of gig economies with several being freelance contractors for companies such as iWriter and Upwork.

However, declaration of income arising from their business ventures to the taxman seems to be inconsistent if the recent notice by Kenya Revenue Authority (KRA) on online businesses is anything to go by.

With the deadline for submission of 2018 personal tax returns just about two weeks away, it will be surprisingly unusual if the trend remains unchanged.

The requirement to register as a taxpayer in Kenya seems to come as early as one attains 18 years of age. It is impossible to apply for a student loan or open a bank account without a tax number, popularly known as Personal Identification Number (PIN). That said, how one applies for the PIN also matters. Millennials looking forward to obtaining a PIN often seek assistance from cyber café attendants who in some instances, due to lack of understanding of various tax obligations, end up registering them oblivious of tax obligations such as Value Added Tax (VAT) and Pay As You Earn (PAYE).

Personal tax returns

In addition, sometimes PIN holders are unaware of the obligations that accompany an active PIN such as filing of tax returns. For instance, a taxpayer is required to submit a nil personal tax return if such a taxpayer has not undertaken any business activity within the year.

Failure to submit the return attracts a minimum penalty of Sh20,000. The penalty can increase to five per cent of the tax due if the taxpayer had conducted some business activity during the year.

Another considerable issue is the tax impact resulting from job hopping. Jumping into a new job may not just lead to additional income but also additional taxes liabilities especially where the change results into an overlap of employment period.

Consolidation of income from several employers might result in tax liabilities since tax reliefs granted by each employer cannot be claimed simultaneously or because income had been taxed by each employer at lower tax rates as compared to the rate applicable upon consolidation.

In addition, following improvement in corporate governance in both private and public sector, and integration of technological tools such as iTax, KRA has access to most transactions where taxpayers including millennials transact with other registered taxpayers or the government.

Social media platforms

They can, therefore, check if taxpayers are reporting full income in their tax return. Nevertheless, it will still be interesting to see how KRA will bring into the tax net individuals trading on online social media platforms.

It has been said that ignorance of law is no defence. A millennial, therefore, needs to be conversant with the basic requirements of tax law, and should consider professional tax advice where necessary. The right amount of tax when due if not paid can be quite punitive.

Did you know that KRA operates a stringent whistle-blower programme where an anonymous informer receives a percentage of the taxes recovered? An aggrieved business partner or even a spouse can be a potential informant.

The taxman has also adopted various aggressive data mining techniques to clamp down on tax cheats. The only harder thing if caught? Proving to KRA that their tax demand is not factual. – Watuka is a transactions specialist at EY. The views are not necessarily those of EY.

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