KRA preliminary finding letter in Kenya

Understanding the KRA Preliminary Finding Letter: What Every Taxpayer Should Know

KRA Preliminary Finding Letter in Kenya: When the Kenya Revenue Authority (KRA) carries out a tax audit or compliance review, it may issue what is known as a Preliminary Finding Letter. For many businesses and individuals, receiving such a letter can feel intimidating. However, understanding its purpose and knowing how to respond can save you unnecessary penalties, interest, and legal battles. The following article will highlight the meaning and essence of KRA preliminary findings letter in Kenya.

The History of the KRA Preliminary Finding Letter in Kenya.

The Kenya Revenue Authority (KRA) was established in 1995 under the KRA Act (Cap 469) with a mandate to collect revenue on behalf of the government. From the very beginning, one of KRA’s core functions has been to ensure compliance by carrying out tax audits and investigations.

Early Audit Practices (1990s – Early 2000s)

  • In the late 1990s and early 2000s, tax audits were often manual and lengthy.
  • KRA officers would conduct site visits, review physical documents, and directly issue assessment letters if they discovered discrepancies.
  • At this time, there was little room for dialogue before assessments were raised — taxpayers often learned of tax adjustments only at the final stage.

Emergence of Preliminary Finding Letters (Mid-2000s)

  • With the modernization of KRA and reforms under the Tax Procedures Act (TPA) 2015, due process became a priority.
  • The idea of KRA Preliminary Finding Letters in Kenya was introduced to give taxpayers an opportunity to respond before a final assessment was issued.
  • This change aligned Kenya’s tax administration with international best practices — ensuring that taxpayers had a right to be heard (a principle of natural justice).

Digital Transformation (2010s – Present)

  • With the rollout of the iTax system (2013 onwards), KRA moved from manual audits to digital matching of returns against third-party data (e.g., banks, suppliers, and government agencies).
  • Discrepancies now trigger automated or semi-automated queries, after which KRA issues Preliminary Finding Letters either through iTax or official correspondence.
  • The letters became a standard step in the audit and compliance process, allowing taxpayers to provide explanations or documentation within a set timeframe.

What is KRA preliminary finding letter?

 A KRA Preliminary Finding Letter in Kenya is a communication issued by the Kenya Revenue Authority (KRA) after they have conducted a tax audit, compliance check, or desk review and identified potential non-compliance, under-declaration, or tax shortfalls.

A Preliminary Finding Letter is an official communication from KRA informing a taxpayer that the authority has identified potential discrepancies, under-declarations, or non-compliance in their tax records.

It is not yet a final assessment — rather, it is an invitation to explain or provide evidence before KRA makes a conclusive decision. If not satisfied with the KRA system on the preliminary finding letter issued ,then you can opt an alternative dispute resolution(ADR) to cover your objection on the letter.

Here’s what you need to know:

Purpose of a KRA Preliminary Finding Letter in Kenya.

Notification of Discrepancies

  • The letter informs you that KRA has identified inconsistencies in your tax records.
    • These could be undeclared income, unsupported VAT claims, payroll discrepancies, or mismatches with third-party data.

Transparency in Tax Audits

  • Instead of issuing surprise assessments, KRA first shares its findings.
    • This gives taxpayers insight into how KRA arrived at the proposed adjustments.

Opportunity to Respond

  • Taxpayers are invited to explain, clarify, or provide supporting documents (e.g., invoices, bank statements, reconciliations).
    • The response window is usually 14–30 days.

Fair Administrative Action

  • The letter supports the principle of natural justice under Article 47 of the Constitution, ensuring that taxpayers are heard before a decision is finalized.
    • It prevents arbitrary assessments by giving taxpayers their legal right to due process.

Basis for Final Assessment

  • If the taxpayer responds adequately, KRA may revise or drop the findings.
    • If the taxpayer fails to respond, KRA will proceed to issue a final tax assessment, which carries penalties and interest.

Key Features of a KRA Preliminary Finding Letter.

Key Features You’ll Find in the Letter

  1. Taxpayer Identification
    • Your name, business name, PIN number, and contact details.
    • Ensures the findings are specific to you and your tax account.
  2. Audit/Review Period
    • The exact period under review (e.g., January 2021 – December 2022).
    • This helps narrow down which returns or financial statements are being examined.
  3. Summary of Findings
    • A clear list of the issues identified, such as:
      • Undeclared income based on bank deposits.
      • Unsupported VAT input claims.
      • PAYE variances in payroll records.
    • Each finding will usually be linked to the relevant tax head.
  4. Basis of Findings
    • Explanation of how KRA reached its conclusions.
    • For example, mismatched supplier declarations, third-party data, or inconsistencies between iTax returns and financial records.
  5. Proposed Adjustments
    • A table or breakdown of the additional taxes KRA believes you owe, often showing:
      • Tax head (Income Tax, VAT, PAYE, etc.)
      • Principal tax
      • Penalties
      • Interest
      • Total amount
  6. Right to Respond
    • A statement giving you an opportunity to explain or dispute the findings.
    • Usually provides 14–30 days to reply.
  7. Mode of Response
    • Instructions on how to submit your response, either:
      • Upload via iTax
      • Or submit directly to the assigned compliance officer.
  8. Next Steps
    • The letter will clearly warn that failure to respond will result in a final assessment being raised against you, inclusive of penalties and interest.
  9. Contact Information
    • Details of the KRA officer handling your case (name, email, or phone).
    • Enables you to engage directly if clarifications are needed.

📌 Why These Features Matter

Each feature of the KRA Preliminary Finding Letter in Kenya is designed to ensure clarity, fairness, and transparency. As a taxpayer, this document is not just a warning — it is an opportunity to rectify, clarify, and defend your tax position before a final liability is imposed.

At Junyan & Associates, we guide clients in reviewing every section of the KRA Preliminary Finding Letter in Kenya and crafting evidence-based responses that protect them from unnecessary penalties.

How to Respond to a KRA Preliminary Finding Letter

Receiving a KRA Preliminary Finding Letter in Kenya from the Kenya Revenue Authority (KRA) does not mean you are guilty of tax evasion. Instead, it is your opportunity to clarify, explain, or provide documents before KRA issues a final tax assessment.

Here’s a step-by-step guide on how to respond effectively:

Step 1: Acknowledge Receipt

  • As soon as you receive the letter, acknowledge it promptly through iTax or by email/letter to the assigned KRA officer.
  • This shows cooperation and prevents KRA from assuming you are ignoring the matter.

 Step 2: Review the Findings Carefully

  • Go through each issue raised in the letter.
  • Compare the findings with your accounting records, tax returns, and supporting documents.
  • Identify whether the discrepancies are valid, clerical errors, or misunderstandings.

 Step 3: Gather Supporting Evidence

  • Collect all necessary documents to defend your case, such as:
    • Invoices and receipts
    • Bank statements and reconciliations
    • Payroll records and PAYE payment slips
    • Contracts and agreements
    • VAT schedules and supplier confirmations
  • Organize them clearly, matching each piece of evidence to the specific finding.

 Step 4: Prepare a Written Response

  • Draft a formal response addressing each finding separately.
  • Be professional, factual, and concise.
  • Clearly explain discrepancies, and attach the relevant evidence.
  • If there was a genuine error, acknowledge it and propose a correction.

Step 5: Submit Your Response

  • Submit your response through iTax (upload in the compliance case section) or directly to the officer handling your audit.
  • Ensure submission is within the 14–30 day deadline stated in the letter.
  • Keep a copy of your submission and acknowledgment for your records.

Step 6: Seek Professional Support

  • Tax laws and audits can be complex. Engaging a tax consultant or advocate can:
    • Strengthen your response with technical expertise.
    • Highlight errors in KRA’s findings.
    • Negotiate for waivers or adjustments where necessary.
    • Represent you if the matter escalates to the Tax Appeals Tribunal (TAT).

 What Not to Do

  • Don’t ignore the letter — silence equals acceptance of the findings.
  • Don’t submit incomplete or unsupported explanations.
  • Don’t delay until the last day, as missing the deadline can trigger an automatic assessment?

Consequences of Ignoring a KRA Preliminary Finding Letter in Kenya

A Preliminary Finding Letter from the Kenya Revenue Authority (KRA) is not just another routine notice. It is a formal step in the tax audit process that gives you, the taxpayer, a chance to clarify issues before a final tax assessment is raised.

If you ignore the letter or fail to respond on time, the consequences can be severe.

 1. Automatic Confirmation of Findings

  • KRA will assume that you agree with their audit results.
  • The preliminary findings will be converted into a final assessment, meaning the tax liability becomes legally enforceable.

 2. Additional Tax Liabilities

  • The final assessment will include not only the principal tax but also:
    • Penalties (commonly 5% of the tax due).
    • Interest (currently 1% per month, compounded).
  • This can make the final liability much higher than the original variance.

 3. Loss of the Right to Dispute Early

  • By ignoring the letter, you lose the chance to explain discrepancies or present documents at the review stage.
  • This forces you into a defensive position, where your only option is to object or appeal against the assessment — a costlier and more time-consuming process.

 4. Enforcement Measures by KRA

If the final assessment is not paid, KRA can:

  • Issue Agency Notices to freeze your bank accounts.
  • Garnish payments from your customers or debtors.
  • Place restrictions on your tax compliance status (you won’t get a Tax Compliance Certificate).
  • Escalate to legal enforcement or prosecution in extreme cases.

 5. Business Disruption and Reputational Risk

  • Frozen accounts and withheld compliance certificates can stall operations.
  • Missing out on government tenders, financing, or contracts that require tax clearance can harm your reputation and growth.

How a Tax Expert Can Help with a KRA Preliminary Finding Letter in Kenya

Receiving a KRA Preliminary Finding Letter in Kenya from the Kenya Revenue Authority (KRA) can feel overwhelming. The technical language, strict timelines, and potential penalties make it a sensitive matter that requires careful handling. This is where a tax expert or consultant becomes invaluable.

🤝 Ways a Tax Expert Can Support You

1. Interpreting KRA’s Findings

  • Tax experts understand the Tax Procedures Act, Income Tax Act, VAT Act, and Employment Tax laws.
  • They can interpret the issues raised and identify whether KRA’s findings are valid or based on misinterpretation of your records.

2. Analyzing Variances

  • Professionals can reconcile your returns, accounting records, and bank statements to pinpoint the cause of discrepancies.
  • In some cases, what looks like under-declared income may simply be inter-company transfers or loan proceeds, which are not taxable.

3. Preparing a Strong Response

  • A tax expert knows how to draft a clear, professional, and well-documented response.
  • They ensure every issue raised in the Preliminary Finding Letter is addressed with the right supporting evidence.

4. Negotiating with KRA Officers

  • Experienced consultants often engage directly with KRA’s compliance officers.
  • They can present your case persuasively and negotiate for waivers, penalty reductions, or adjustments where applicable.

5. Protecting You from Penalties

  • By ensuring timely and accurate responses, tax experts help you avoid unnecessary penalties and interest.
  • If errors exist, they guide you on the best way to make corrections while minimizing exposure.

6. Representation in Disputes

  • If KRA proceeds to issue a final assessment despite your response, a tax expert can:
    • File an objection under the Tax Procedures Act.
    • Represent you before the Tax Appeals Tribunal (TAT).
    • Support you in litigation if the dispute escalates further.

Final Word

With the guidance of a qualified tax expert, you can turn it into a chance to clarify your records, protect your business, and maintain compliance. At Junyan & Associates, we specialize in responding to KRA audit findings, negotiating settlements, and safeguarding clients from unnecessary tax burdens.

👉 Have you received a KRA Preliminary Finding Letter in Kenya? Let our experts handle it for you.