TPA 2

Payment, penalties, interest and enforcement

1Scope and legal basis

Parts VII to IX and XII of the Tax Procedures Act deal with the payment of tax (section 38 onward), the recovery of unpaid tax (sections 40 to 47), penalties and interest (sections 80 to 89) and offences (sections 90 to 106). The core rule is that tax is due on the date the return is due (or the date in the notice of assessment), that a late payment penalty of 5% and interest at 1% a month follow automatically, and that the Commissioner has a graduated set of powers to collect: demand, agency notices to banks and debtors, security over land, distress on goods, departure prohibition orders, and suit, with a lien over the taxpayer's property from the date the tax becomes due. Penalties and interest may be waived or remitted, and Parliament periodically legislates an amnesty; the Finance Act 2026 provides one for periods up to 31 December 2025 where the principal is settled by 31 December 2026.

2Key definitions

Due date

The date on which tax is payable: for self-assessed tax, the date the return is due; for an assessment, the date specified in the notice (normally 30 days); for instalments, the instalment dates; for withheld tax, the remittance date. Interest runs from the due date regardless of any objection or appeal unless the Commissioner or the Tribunal grants a stay.

Tax shortfall

The difference between the tax properly payable and the tax assessed on the taxpayer's return or statement; the tax shortfall penalty under section 84 is 20% of the shortfall, or 75% where the shortfall arose from a deliberate omission or misstatement, reduced by 10% for voluntary disclosure before an audit notice and increased by 10% for a repeat.

Agency notice

A notice under section 42 to a third party who owes money to, holds money for, or is about to pay money to the taxpayer (a bank, an employer, a debtor, a tenant) requiring that person to pay the amount to the Commissioner; the third party who complies is discharged, and one who fails to comply is personally liable for the amount.

Distress

The seizure and sale of the taxpayer's movable goods under section 43 by an authorised officer to recover unpaid tax after a demand, with the costs of distress recovered from the proceeds.

Security on property and departure prohibition

Under section 40 the Commissioner may register a charge over the taxpayer's land or buildings as security for unpaid tax (with notice to the registrar), and under section 44 may issue a departure prohibition order to prevent a person from leaving Kenya without paying or securing the tax.

Waiver and remission

Section 89 allows the Commissioner to waive penalties and interest, in whole or part, where the taxpayer applies with reasons (illness, system failure, genuine dispute, hardship); the 2018 amendments limited the Commissioner's discretion and require the Cabinet Secretary's approval above thresholds; a system-error waiver of up to KES 2 million was added in 2026. Relief from collection on grounds of doubt or difficulty of recovery needs the Cabinet Secretary's written approval (2024).

3Charge, computation and rates

Penalties and interest

Charge	Amount
Late payment penalty (section 83)	5% of the tax unpaid, once
Late payment interest (section 38)	1% per month or part of a month on the unpaid tax, simple (not compounded), from the due date until paid, capped at the amount of the principal tax (the 100% cap introduced in 2018)
Tax shortfall penalty (section 84)	20% of the shortfall; 75% where deliberate; reduced by 10 percentage points for voluntary disclosure before an audit notice; increased by 10 points for a second occurrence
Tax avoidance penalty (section 85)	Double the amount of tax avoided
Failure to withhold or remit withheld tax (income tax or VAT) (section 42A)	10% of the amount not withheld or remitted, plus the tax and interest, and personal liability of the agent
Instalment tax underestimate (Twelfth Schedule, ITA)	20% of the difference where the instalments paid fall short of the tax finally due by more than the permitted margin, plus interest
Fraudulent claim for a refund (section 88)	Double the amount claimed
Failure to comply with an agency notice	Personal liability for the amount plus penalties
False or misleading statement (section 88 and 97)	Penalty of 75% shortfall where deliberate; criminal fine up to KES 1 million or imprisonment up to three years, or both
Obstruction of an officer, failure to appear, failure to provide information	Fines up to KES 1 million and imprisonment up to three years; KES 100,000 for failure to furnish information
Fraud in relation to tax (section 97)	Fine up to KES 10 million or double the tax evaded, whichever is higher, or imprisonment up to ten years, or both
Aiding, abetting, or offences by a tax agent	Fines and imprisonment as prescribed; licence cancellation

What a late VAT payment costs

VAT of KES 1,200,000 for June 2026, due 20 July 2026, paid on 5 November 2026 (3 months and 16 days late: four months or part-months).

Late payment penalty: 5% × 1,200,000 = KES 60,000. Interest: 1% × 1,200,000 × 4 = KES 48,000. Late filing penalty if the return was also late: the higher of 5% of 1,200,000 = 60,000 and KES 10,000, so 60,000.

Total cost of lateness: KES 168,000 on top of the KES 1,200,000. If the June return had understated the tax by 300,000 and the KRA found it on audit, a further shortfall penalty of 20% × 300,000 = 60,000 (75% = 225,000 if deliberate) and interest on the 300,000 from 20 July.

Had the taxpayer disclosed the 300,000 voluntarily before any audit notice, the shortfall penalty would drop to 10%; and under the 2026 amnesty, penalties and interest on periods up to 31 December 2025 are waived if the principal is paid in full by 31 December 2026 (June 2026 is outside it).

Payment and recovery

Payment is made through iTax by generating a payment slip (e-slip) and paying at a bank, by mobile money or by RTGS; payments are allocated first to the principal tax, then penalties, then interest of the oldest period unless the taxpayer specifies. A taxpayer in difficulty may apply for a payment plan (instalment agreement) under section 33; interest continues to run and default cancels the plan.
Recovery sequence: a demand notice; then, at the Commissioner's election, an agency notice to banks and debtors (the most used tool), registration of security over land, distress on goods, a departure prohibition order for individuals, and civil suit in the High Court where the tax is a debt due to the government. Directors and officers of a company can be pursued for the company's unpaid PAYE, VAT and withholding tax where the company cannot pay (section 45 and the personal liability provisions), and a transferee of a business is liable for the transferor's tax on the business.
Priority: unpaid tax ranks as a preferential debt in insolvency for the amounts and periods the Insolvency Act specifies, and the Commissioner may require the liquidator to set aside funds.
The Commissioner may refrain from recovering tax where it is uneconomic or impossible (doubt or difficulty of recovery) with the Cabinet Secretary's written approval, and may write off tax on the same basis; the Finance Act 2026 lets the KRA recover unpaid fees and levies as though they were tax and recover amounts up to KES 100,000 summarily.
Refunds and set-off: overpaid tax is refunded on application (income tax within five years, others within twelve months) after audit, or set off against other tax due; interest at 1% a month is paid by the Commissioner on refunds delayed beyond the statutory period.

Waivers, amnesties and voluntary disclosure

Waiver of penalties and interest: application on iTax with reasons and evidence; the Commissioner may waive in full or part, and the decision is appealable. The 2026 Act lets the Commissioner waive penalties and interest caused by an electronic system error up to KES 2 million without further approval.
Amnesty (Finance Act 2026, effective 1 January 2027): penalties and interest on tax obligations for periods up to 31 December 2025 are waived where the principal tax was, or is, paid in full by 31 December 2026; a taxpayer with principal outstanding must apply and pay by the deadline. It follows the amnesties of 2023 to 2025 (which ran to 30 June 2025 for periods to 31 December 2023) and applies automatically where the principal is already settled.
Voluntary disclosure programme: a taxpayer who discloses undeclared tax before an audit or investigation notice and pays the principal benefits from the reduced shortfall penalty and, where an agreement is reached, relief from prosecution; disclosures after an audit notice get no relief.
Alternative dispute resolution and settlement: an agreed settlement under the ADR framework may include an agreed penalty position within the Act's limits (see TPA 3).

4Compliance: returns, payment and penalties

A taxpayer pays each tax by its due date through iTax, reconciles the iTax ledger to its own records monthly (the ledger drives the tax compliance certificate and any agency notice), applies for a payment plan before default where cash is short, responds to demand notices within the time given, and applies for waivers with evidence rather than ignoring penalties, because interest continues to run on the principal during a dispute unless a stay is obtained. On receiving an agency notice a bank freezes and remits the funds, so a business with an unresolved assessment should object within the 30 days (which does not itself stop recovery, but the Commissioner ordinarily suspends enforcement of the disputed amount pending the objection decision and, on appeal, the Tribunal may stay). Directors keep PAYE, VAT and withholding taxes ring-fenced, because those are trust moneys for which they may be personally liable, and a company in distress prioritises them. Where the 2026 amnesty applies, the taxpayer confirms the principal is paid and the penalties and interest are written off on the ledger; where it is not, a waiver application is the route.

5Examinable focus

What KASNEB tests

A computation of the cost of late payment (5% penalty, 1% a month simple interest capped at the principal, plus the late filing penalty and any shortfall penalty at 20% or 75%) is common, and so is a list question on the Commissioner's recovery powers in order (demand, agency notice, security over property, distress, departure prohibition, suit, directors' liability). Know the offences and their sanctions (fraud: KES 10 million or double the tax, ten years), the waiver rules and the current amnesty terms (periods to 31 December 2025, principal by 31 December 2026), and the voluntary disclosure discount. A scenario often gives a company that has used PAYE and VAT to fund operations: identify the trust-money character, the agency notice risk and the directors' personal liability.