On 26 September 2023, the Kenya Revenue Authority published guidelines (the Guidelines) for insolvency practitioners (IPs) to operationalise the provisions of section 17 of the Tax Procedures Act, No. 29 of 2015 (the Tax Procedures Act) on the duties of an appointed person (which includes an IP). An IP is defined as any person acting in relation to a natural person or company under circumstances related to personal bankruptcy (to include the estate of a deceased person) or insolvency for a corporate body.
The purpose of the guidelines is to facilitate IPs towards attaining tax compliance to the subject being administered. It is worth noting that pursuant to the provisions of the Second Schedule to the Insolvency Act, No. 18 of 2015, taxes (specifically) fall in the following priority cascade:
as a second priority claim, all income taxes deducted from wages or salaries (PAYE) which are paid during the course of bankruptcy/insolvency to employees of a bankrupt person or insolvent entity;
as a third priority claims: PAYE deductions that remain unpaid prior to and in the course of bankruptcy/insolvency; non-resident withholding taxes deducted by the company that remain unpaid in the course of bankruptcy/insolvency; resident withholding taxes deducted by the company that remain unpaid during the course of bankruptcy/insolvency; and any duties payable under the East African Community Customs Management Act, 2009 and the Excise Duty Act, No. 23 of 2015.
Process Flow
The Guidelines provide for the following initial process flows as part of insolvency administration:
notification by the IP to the Commissioner General (the Commissioner) of their appointment within 15 days of the date of their appointment through the address insolvency@kra.go.ke;
the IP shall obtain iTax rights within 1 month upon notification to the Commissioner; and
the Commissioner shall issue to the IP notification of the taxes payable or taxes that will become payable by the insolvent/bankrupt person.
Asset Disposal and Tax Payments
The Guidelines make reference to the asset disposal duties of an IP under the Tax Procedures Act which, in summary, require the prior approval of the Commissioner who has a 2-month time frame to issue their approval on the same.
For further information please contact Samuel Kisuu or your relationship partner at Africa Law Partners.