The Kenya Revenue Authority (KRA) plans to use systems that will gather intelligence on businesses production trends, people’s usage of mobile money and ownership of properties, as the main way to squeeze at least Sh3 trillion taxes from Kenyans in 2023/24, according to new budget proposals.
In the draft Budget Policy Statement (BPS) 2023, the Kenya Revenue Authority (KRA) plans to go big on reliance on technology to net tax cheats, by integrating systems with public and private companies and hunting millions of informal businesses with potential to pay Sh2.8 trillion taxes.
While indicating plans to rein heavily on the informal sector, Treasury also laid down plans to crack the hard-to-tax individuals who don’t file tax returns despite trends of generous spending, by requiring KRA to integrate its systems with those of telecommunication companies (Telcos). This would give the authority sight into different people’s spending habits and trace possible tax evasion.
The final stroke will be on general businesses, land and property owners, with KRA integrating its systems with the National Lands Information Management System (NLIMS) and businesses through the rollout of the electronic Tax Invoice Management System (eTIMS)- which will give the authority access to full trading information by businesses in real time- filling the gap many businesses have used to pay less taxes, mainly Value Added Tax (VAT) and Corporate Income Tax (CIT).
“On the tax administrative side, KRA will implement among others, integration of KRA tax system with the Telcos, tax base expansion in the informal sector and implementation of Rental Income Tax Measures by mapping rental properties,” the draft BPS 2023 states.
Treasury points out that the government will conduct enhanced field data analysis and integrate KRA’s itax with NLIMS (dubbed Ardhisasa) – the system that will hold all land records in Kenya – to grow land and rental taxes.
It also prepares the Micro, Small and Medium-sized Enterprises (MSMEs) to pay their due share, in a plan that could see millions of the businesses that currently don’t formally pay taxes have a date with KRA.
“The potential taxable base of the informal sector is Sh2,800 billion (Sh2.8 trillion) as per the MSME survey,” Treasury stated.
President Ruto’s government has also laid down strict measures to seal tax evasion holes in Kenya’s manufacturing sector, with plans to monitor full production by factories real time.
“Placement of resident officers to monitor production, providing strict time lines for factories to meet requirements, establishment of a Production Monitoring Command Centre to monitor production in real time, enforce all factories to meet all factory requirements by use of metering and monitoring tools,” the 2023 draft BPS states.
The measures are besides plans to grow automation of more services within government with a target on more revenues, including at the border where the draft BPS states plans to leverage technology and enhanced data analytics to enhance revenue per unit.
The government has also tasked KRA to address different challenges that have hampered tax compliance, including a trend by business not to declare or under declare sales and use of fictitious claims. This, Treasury said, will be achieved through the full roll out of Etims, restriction to eTIMS compliant invoices for income tax deductions and deployment of big data analytics to drive compliance interventions.
KRA in September last year uncovered a web of tax evasion running since 2013 that had seen thousands of businesses dodge taxes worth billions of shillings, by issuing KRA with fictitious invoices during filing of taxes, duping it into deducting Input Tax from their tax liabilities, even though the businesses had not made any actual input purchases.
“KRA would like to inform the general public that there are taxpayers who are issuing fictitious invoices that are not supported by any supply of goods or services. The intention thereof is to evade tax,” KRA said then.
The government also wants all its key entities to automate their systems and integrate them with KRA, “to allow seamless exchange of information for a 360-degree view of the taxpayers’ economic transactions and enhancement of KRA capacity on big data analytics to drive compliance interventions.”
The draft BPS expresses the government’s focus on enhancing more revenues as a way to slow down on public debt, to cut the budget deficit from about 6 per cent to 3 per cent.
“The fiscal policy will target to grow tax revenues above 17.8 per cent of GDP in the FY 2023/24 and above 18 per cent of GDP over the medium term. As part of the economic turnaround plan, the Government will scale up revenue collection efforts by the KRA to Sh3 trillion in the FY 2023/24 and Sh4 trillion over the medium term,” it states.
The government has also committed to finalise the National Tax Policy and the Medium-Term Revenue Strategy (MTRS)for the period FY 2023/24 - 2026/27, which will guide its revenue collection.
“The National Tax Policy Framework will enhance administrative efficiency of the tax system, provide consistency and certainty in tax legislations and management of tax expenditure. On the other side, the Medium-Term Revenue Strategy will provide a comprehensive approach of undertaking effective tax system reforms for boosting tax revenues and improving the tax system over the medium term,” Treasury stated.
The target is to raise share of ordinary revenue to GDP from 15.0 per cent to 25 per cent and increase tax compliance rate from 70 per cent to 90 per cent, in the FY 2021/22 and by 2030 respectively.
