Purpose

These guidelines inform taxpayers of the circumstances under which penalties and interest may qualify for waiver under Sections 89(5A) and (5B) of the Tax Procedures Act (TPA), the supporting documentation that may be required, and the process to expect when submitting an application.

The waiver is limited to qualifying penalties and interest arising from specified system-related errors. It does not extend to principal tax that remains legally due and payable.

Legal Basis

These guidelines are based on Section 89(5A) and (5B) of the Tax Procedures Act, Cap. 469B, as amended by the Finance Act, 2026.

Section 89(5A) provides that the Commissioner may recommend to the Cabinet Secretary the waiver of penalties and interest where the liability arose as a result of:

1. an error generated by an electronic tax system;
2. a delay in the updating of an electronic tax system;
3. duplication of penalties or interest due to a malfunction of an electronic system;
4. (ca) malfunction of an electronic tax system; or
5. the incorrect registration of taxpayer obligations.

Section 89(5B) further provides that, notwithstanding subsection (5A), the Commissioner may waive the whole or part of any penalty or interest imposed under the TPA where the liability to pay the penalty or interest does not exceed Kshs. 2,000,000 and arose from an error generated by an electronic tax system.

Who May Qualify?

A taxpayer may be considered for waiver where it can be established, through appropriate evidence, that the penalties and/or interest arose directly from a circumstance covered under Section 89(5A) or (5B) of the TPA.

Under Section 89(5B), the Commissioner may waive the whole or part of a penalty or interest imposed under the TPA where the liability does not exceed KShs. 2,000,000 and arose from an error generated by an electronic tax system.

Circumstances That May Qualify

The following circumstances may qualify for consideration, subject to verification and supporting evidence:

1. System error that prevents or restricts a taxpayer from filing returns or making payments within the prescribed timelines (special table cases/PIN or obligation suspension/eTIMS-related reconciliation issues);
2. System error that records the payment against the date of capture rather than the correct date of payment or refund ascertainment (manual payment capture where payments were made on time but no PRNs were generated, and refunds and offsets voucher);
3. System error that generates erroneous penalties and interest on historical taxpayer obligations by requiring the filing of returns that had been placed under dormancy or whose obligation had been suspended or removed;
4. System error that causes excessive, multiple, or erroneous penalties or interest, including duplicate posting of transactions resulting in duplicate tax liabilities;
5. System error that imposes interest on employees for an employer's late remittance of PAYE, instead of imposing it only on the employer;
6. System error that delays synchronization of taxpayer ledger adjustments;
7. System error that fails to carry forward VAT/Excise credits to the subsequent period;
8. System error that fails to clear imposed interest or penalties after the underlying principal tax liability has been vacated or corrected;
9. System error that leaves interest or penalties outstanding after cancellation of an erroneous eTIMS invoice and issuance of a credit note;
10. System error that allocates a PIN with an obligation to a taxpayer without taxable income, arising from the system's earlier inability to allocate obligation-less PINs (e.g., for students, or applicants for a driver's licence, land transfer, water connection, electricity meter, student loan, or water/electricity connection);
11. System error that prevents execution of tax amnesty during the amnesty period for qualifying taxpayers;
12. System error that prevents the vacation of interest or penalties following cancellation of erroneous PRNs (e.g., withholding or duplicate eTIMS sales invoices) or other system transactions that directly result in erroneous penalties or interest;
13. System error that fails to clear interest and penalties even after correction of the underlying error that caused multiple postings of similar sales invoices on the VAT ledger and created invalid debt;
14. System error that re-instates interest or penalties in the ledger even after their earlier vacation;
15. System error that prevents the raising of an assessment despite full payment of the principal tax, causing taxpayers to miss the tax amnesty deadline;
16. System error that allocates two or more PINs to a taxpayer, with transactions posted across the multiple PINs;
17. System error that affects the order of utilisation of payments (e.g., applying payments to penalties or interest before principal taxes, or failing to recognise the correct date of payment of advance tax or date of generation of vouchers);
18. System error that imposes unsupported penalties or interest;
19. Any other demonstrable system-generated error that results in an erroneous penalty or interest liability.

Cases That Do Not Qualify

The following penalties and interest do not qualify for waiver under these guidelines:

1. Penalties and interest arising from taxpayer non-compliance-failing to pay or file on time;
2. Late filing penalties attributable to the taxpayer's action or omission;
3. Late payment penalties and interest attributable to the taxpayer's action or omission;
4. Cases involving fraud, misrepresentation, concealment of information or negligence by the taxpayer;
5. Interest and penalties arising from assessments raised by audits, investigations or enforcement actions, unless it is established that the penalties and/or interest arose directly from a qualifying system-related error;
6. Penalties and interest arising from a taxpayer's failure to comply with a statutory obligation where the electronic tax system operated as intended;
7. Interest and penalties arising from objection or litigation /dispute cases ruled in favour of the Commissioner fully or partially and the taxpayer fails to pay the principal tax within the amnesty period;
8. Any other case that does not meet the statutory conditions under section 89(5a) and (5b);
9. Interest and Penalties accrued by Public Sector Division (PSD) Taxpayers due to late disbursement of funds;
10. Interest and Penalties accrued by taxpayers with government pending bills;
11. Interest and Penalties accrued outside the revenue Acts as stipulated in the Tax Procedure Act.

What the Waiver Covers

1. The waiver may cover the whole or part of qualifying penalties and/or interest.
2. The waiver does not extend to principal tax liabilities that are legally due and payable.
3. Where the principal tax liability is disputed, the dispute should be addressed through the appropriate statutory dispute resolution mechanism and not through the waiver process.

Supporting Documents and Evidence

The taxpayer should provide sufficient evidence to demonstrate the cause of the penalty or interest and its direct connection to the qualifying system-related issue. Depending on the circumstances, supporting documents may include:

1. Screenshot or other evidence of a system error message.
2. Correspondence with KRA showing the system-related challenge.
3. Proof of payment, such as bank receipts or other payment confirmations, where relevant.
4. Relevant taxpayer ledger extracts or transaction records.
5. Evidence of a request for return amendment, cancellation/removal of an obligation or PIN, change of accounting period, or addition of an obligation.
6. Evidence relating to dormancy or suspension of an obligation, where applicable.
7. Return filing records and iTax acknowledgement details.
8. Evidence relating to cancelled erroneous PRNs, eTIMS invoices or credit notes, where applicable.
9. Evidence of payment of principal tax and the date of payment, where relevant to an applicable tax amnesty.
10. Documents supporting an erroneous registration or allocation of a tax obligation.
11. Any other relevant evidence that demonstrates the cause of the erroneous penalty or interest.
12. The evidence provided should be clear, relevant and sufficient to demonstrate that the liability arose from the qualifying circumstance. Additional information or evidence may be requested where necessary.

How to Apply

1. Review your taxpayer ledger and identify the penalty or interest for which you are seeking waiver.
2. Confirm that the liability appears to arise from one of the qualifying circumstances and that you have evidence to support the application.
3. Submit the waiver application together with the relevant supporting documents.
4. Where additional or new evidence is requested, provide it within five (5) working days upon notification by the KRA officer.
5. The application will be reviewed to establish whether the statutory conditions for waiver are met.
6. Where the application is approved, the approved waiver will be effected in the taxpayer's ledger and the taxpayer will be notified, where applicable.
7. Where the application is rejected, the taxpayer will be notified. The taxpayer may make a fresh application where appropriate, supported by evidence of the grounds relied upon.

Important Points to Note

1. Submitting an application does not by itself guarantee that a waiver will be granted.
2. The penalty or interest must arise directly from a qualifying circumstance under the law.
3. The taxpayer should ensure that all information and supporting evidence submitted is accurate and relevant.
4. A waiver application cannot be used to resolve a dispute concerning the principal tax liability.
5. Where a waiver is granted erroneously or incorrectly effected, the waiver may be rectified in accordance with Section 79 of the TPA.

Outcome of an Application