Though you probably pay your taxes and file your returns on time, the reality is that your company’s records at KRA are never correctly or automatically updated. KRA records may reflect tax liabilities because tax payments that you have made haven’t been captured. The system will also be quick to add penalties and interest which further compounds the figure significantly.
Filing your returns is simply not enough! Your finance team needs to regularly visit KRA offices, obtain statements and reconcile them with a view to addressing discrepancies. You need to do this when time is on your side.
A real world example of the downside to not keeping your tax records updated is when you apply for a tax compliance certificate that subsequently gets declined because the system indicates that you have tax liabilities.
If you urgently need the compliance certificate, say for an important public bid that you are participating in, you will only have two options:
- Pay the incorrect tax due and obtain the tax compliance certificate immediately so that your company can participate in this important bid.
- Get your finance team and/or tax consultant to reconcile your records with the taxman and clear out the incorrect dues. This process will probably take a few weeks to complete and you might not obtain a compliance certificate in time to be involved in the bid.
Both are unattractive options because they require you to either sacrifice crucial and probably unavailable cash flow or lose the opportunity to participate in what could be a vital project for your company.
As an entrepreneur, you need to focus on achieving your goals, not fighting tax related fires.