1. ANTIAVOIDANCE PROVISIONS & DIFFERENCES BETWEEN AVOIDANCE & EVASION

2. CPA Dr. JOSEPH MUCHIRI, PhD.
Presenter
CPA Dr. JOSEPH MUCHIRI, PhD.
TOPWISE CONSULTANTS

3. Outline Definitions: avoidance & evasion Impact Reasons
Ways of evasion
Ways of avoidance
Antiavoidance provisions

4. Definitions & impact Avoidance-legal & professional
Evasion-illegal & unprofessional
Impact: To reduce tax burden/exposure

5. Reasons for avoidance & evasion
Lack of effective tax planning measures
Ignorance/Illiteracy/Inadequate knowledge of taxation
High tax rates
Complexity of laws/rules/regulations
Inefficient/incompetent tax authorities/officers
Corruption/politics/ethics
Lack of self–discipline
Wealth creation (payback)

6. Ways/schemes of evasion
Willful failure to file return
Willful failure to collect & remit tax
Preparing false tax returns/statements
Making false claims
Expenses
Refund claims
Deliberately under/non declaring taxable income
Keeping multiple sets of books
Role of middlemen
Aid/abetting in the preparation of false documents
Conspiracy to impede or defeat the collection of tax

7. Schemes cont… Transferring unreported income to tax havens
Creation of tax losses & c/f or backward (balancing deduction)

8. Ways/schemes of avoidance
Claiming an income as totally exempt from tax e.g
capital gains at NSE
interests from POSB
savings bank or interests arising from tax reserve certificate
Interests accrued on deposits to HOSP of up to sh3m
Interests from infrastructure bonds of >=3 years
By claiming reliefs and other allowances as per S.15(2).
Investing in areas where income is qualifying since withholding tax is final eg in SACCOs
Through shortfall distribution of dividends

9. Anti avoidance provisions
Sec 62: Return on exempt income
Sec 18: Branch of non resident business
18(4)
NR Non WTSD remuneration NA
NR WTSD deduction allowed upto 150k
executive and general administrative expenses allowed on discretion of CDT
18(5)-expenses( interest, royalties or management or professional fees) of a branch to HO(NR) NA
Section 16(2j):Thin capitalization (excluding FIs)
Sec 24: Avoidance on non distribution of dividends (short fall)
Sec 15(4) loss c/f
Sch. 2(part II(11)): Balancing deduction

10. Provisions cont… Other initiatives by KRA
Sec 52A(4)-Return on compensating tax
Charitable donations regulations(2007)
Transfer Pricing Rules(2006)
Sec 23: Transactions designed to avoid tax liability chargeable
Sec 85 of TPA-penalty
Other initiatives by KRA
Regular audit
Leverage on IT-iTax, ETR

11. Provisions cont… Sec 24: Shortfall distribution of dividends
Consider the following for a firm that distributed sh 50m.
Sh m sh m Total sh m
Operating income 100
Investment
(30) (12)
PAT
Retention (S.24(4)) (42) -
Distributable
Distributed (50)
Shortfall
Taxes on shortfall:
W/T: 5%x6m= m
Late payment: 20%x0.3m=0.06m
0.36 ( This excludes the 1%pm simple interest (S.38 TPA)

12. Provisions cont… Sec 7A: Compensating tax (avoidance on corporate tax)
A firm had a profit ater tax of sh 4.2m, tax refund of sh It had paid divided of sh 6.4m and received divided of sh Compute the compensating tax.
Divided tax account
Refund Tax paid 4200x3/7 =1800
Divided paid 6400x3/ Div received 1500x3/7=643
Compensating tax

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