The Kenya Revenue Authority (KRA) will receive an additional Sh12 billion to pursue tax cheats in a major crackdown after the National Treasury proposed to amend the law and allocate the taxman a fifth of the revenues it collects from import declaration fees.
Through an amendment to the Finance Bill 2024, the Treasury Cabinet Secretary wants the KRA to get at least 20 per cent of the money it collects from the import declaration fees.
The war chest will allow the KRA to hire extra intelligence and enforcement officers as well as up its tech capabilities to bolster revenue collection from new planned levies and pursue tax cheats as the Treasury seeks to raise at least Sh364 billion in additional taxes for the fiscal year starting next month.
To shore up revenue, President William Ruto’s administration has proposed a raft of tax increases on items like bread, mobile money transfers, banking services, an annual car tax, and an eco-levy, angering citizens and the opposition, who say the cost of living is already too high.
The KRA wants to go after tax cheats by profiling customers using technologies as well as integrating its system with that of third parties such as banks, telcos, Kenya Power, and land registries.
The Treasury has also proposed to increase the import declaration fees to three per cent from the current 2.5 per cent.
Currently, the Miscellaneous Fees and Levies Act requires that 10 per cent of the import declaration fees collected be paid into a fund and used for the payment of contributions to the African Union and any other international organisation to which Kenya has a financial obligation.
“By deleting subsection (7) and substituting therefor the following new subsection—(7), ten per cent of monies in the fund under subsection (6) shall be used for the payment of Kenya’s contributions to the African Union and any other international organisation to which Kenya has a financial obligation, while 20 per cent will be used for revenue enforcement initiatives or programmes.
Part of the import declaration fees—charged on all goods imported into the country—will also be used to pay subscriptions to the African Union and other international organisations.
A report by the National Treasury puts the estimate of the import declaration fees to be collected in the coming financial year starting July at Sh60.7 billion, which means the KRA is entitled to Sh12.14 billion should it hit this target.
It is a shot in the arm of the KRA, which has struggled to meet its annual tax collection target, blaming it on poor financing.
Depending on the discretion of the Treasury Cabinet secretary, the KRA might also retain about two per cent of what it collects on behalf of the Exchequer.
In the financial year 2024/25, the National Treasury has given the KRA a target of Sh2.95 trillion, which means that its income should it meet its ordinary revenue target will be Sh59.96 billion, pushing the total income to Sh71 billion.
Additionally, the KRA is also entitled to a bonus of three per cent of the surplus revenue collected above the estimates.
In the Draft Budget Policy Statement, the National Treasury had hinted that the KRA would receive an additional Sh12.9 billion in funding to help with tax administrative measures aimed at enhancing compliance and broadening the tax base in the current financial year ending in June. The KRA’s enforcement unit has been using various databases to pursue suspected tax cheats, including bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority, which reveal individuals who own assets such as aircraft.
Car registration details are also being used to smoke out individuals who are driving high-end vehicles but have little to show in terms of taxes remitted.
Kenya Power meter registrations are also helping the taxman to identify landlords, some of whom have been slapped with huge tax demands.
It says a sharp increase in imports of luxury goods and multi-million shilling investments in real estate has opened its eyes to a potentially massive tax leakage, which if tapped could yield billions of shillings in additional revenues to the Exchequer.
The argument is supported by the fact that only a few Kenyans have officially registered as belonging to the high-income earners’ bracket despite the massive growth in conspicuous consumption, especially in Nairobi.
The additional measures which are contained in the Medium Term Revenue Strategy are aimed at, among others, expanding the tax base by recruiting new taxpayers into the tax net, simplifying the tax procedures and ensuring timely tax refunds.
To enhance compliance among the hard-to-tax sectors, such as the informal sector, the KRA recruited field officers whose deployment briefly helped the taxman increase tax demands before the court declared their hiring unconstitutional for non-compliance in regional balance.
The KRA is also implementing the electronic Tax Invoice Management System (e-Tims), from which taxpayers can generate an electronic tax invoice for all their transactions.
Only expenses backed by electronic tax invoices can be allowed as deductible expenses when a taxpayer files an income tax return at the end of the year.
In its Budget proposal submitted to the National Treasury on January 31, 2023, the KRA had sought Sh57.4 billion in direct funding from the national government to finance its operations for the next financial year.
Cumulatively, the taxman was seeking Sh61.8 billion to operate comfortably.
The National Treasury, however, approved only Sh23.7 billion in direct funding for the current financial year.
The KRA said it required Sh5 million to develop a Case Management System for the automation of background checks, vetting and lifestyle audits.
The taxman wanted Sh37 billion for staff remuneration, recruitment of new staff and capacity building. It wanted another Sh7.9 billion for revenue mobilisation and operations and Sh9 billion for the existing contracted services for revenue collections and operations.
