Record Keeping for tax purposes

Keeping accurate records is one definite way of tax planning and remaining compliant with the tax laws. Unfortunately, it calls for discipline and investment in time and resources. However, the benefits outweigh the cost. The seriousness of the matter becomes more vivid in case of a tax assessment by tax authorities

Section 57, 58(2), 59 and 99 of the Tax Procedure Act (TPA contains the provisions for record keeping , records production and tax enforcement . The law gives KRA unfettered access to taxpayer’s devices and records. The law also the lays the burden of proof squarely on the tax payer ie if the tax man doubts your self-assessed tax returns or issues you with an assessment, it is upon you to prove him otherwise. This implies you must be careful how you keep your records. You can end up paying disproportionately high taxes due to lack of proper records and documentary evidence.

Section 23 of TPA provides that a taxpayer should keep documents for a period not less than five years and in the case of a tax dispute, the documents should be kept as long as the issue hasn’t been resolved.

(1) A person shall— (a) maintain any document required under a tax law, in either of the official languages; (b) maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; and (c) subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.

(2) The unit of currency in books of account, records, paper registers, tax returns or tax invoices shall be in Kenya shillings.

(3) When, at the end of the period specified in subsection (1)(c), a document— (a) relates to an amended assessment, the person shall retain the document until the period specified in section 31(7) has expired; or (b) is necessary for a proceeding commenced before the end of the five year period, the person shall retain the document until all proceedings have been completed.

The TPA in section 97 also classifies falsification of documents and records as a tax fraud

97. Fraud in relation to tax

Any person who, in relation to a tax period, knowingly— (a) omits from his or her return any amount which should have been included; or (b) claims any relief or refund to which he or she is not entitled; or (c) makes any incorrect statement which affects his or her liability to tax; or (d) prepares false books of account or other records relating to that other person or falsifies any such books of account or other records; or (e) deliberately defaults on any obligation imposed under a tax law

Despite the above provisions, the TPA in Section 23 further provides that a simplified method of keeping records may be adopted for small businesses

(5) Despite anything in any tax law, the Regulations may provide for a simplified system of record-keeping for small businesses.

The above provisions underscores the importance of record keeping for your business in the wake of digitization of tax systems in Kenya. It’s therefore prudent that you examine how effective your record keeping method has been; where necessary seek professional help.