After connecting its platform with those of telecoms, the Kenya Revenue Authority (KRA) would monitor transactions on mobile merchant accounts, such as Safaricom’s Lipa Na M-Pesa, in real-time, emulating the results of a similar integration with betting businesses in detecting tax evaders.
The KRA has already taken the first steps toward having a 24/7 picture of the trillions of shillings in annual transactions on the telecom’s infrastructure with the intention of capturing telcos and traders who under-declare taxes, according to Business Daily.
The claims to have formed a dedicated team to develop guidelines for linking its Times Towers systems with telcos’ systems.
President William Ruto’s order to “collect every shilling due” will be carried out thanks to the planned connectivity, which will give the KRA real-time visibility of transactions for tax purposes.
According to David Mwangi, the acting commissioner for the domestic taxes division, “the process is in the early stages of piloting.”
The goal of the integration with telcos is to provide real-time transaction visibility and, as a result, offer daily trends on which compliance steps can be made to improve revenue collection.
The largest target, though, will be traders who, despite generating a fortune via mobile payment services, have been underreporting taxes for years.
The KRA will process the data with a view to netting traders whose transactions on merchant digital accounts like Safaricom’s Lipa na M-Pesa Pay Bill and Till wallets do not reflect the taxes they remit based on the sales they declare, according to another source at the Times Towers who spoke to the Business Daily.
According to the Internal Revenue Agent, some telecom providers declare reduced charges on the sale of airtime and Internet as well as fees for sending and receiving money, upon which taxes are determined. This leads to the reporting of lower charges on the sale of these services.
According to the most recent Central Bank of Kenya figures, for instance, the amount of cash handled by mobile money agents was valued at Sh7.811 trillion for the fiscal year that ended in June, an increase of 4.97 percent from Sh7.441 trillion the year before.
Instead of being dependent on the number of transactions, taxes are based on fees levied by mobile network operators.
Among the largest taxpayers are telecom companies, with Safaricom often ranking at the top for prompt payments.
The sale of airtime and data bundles attracts a 15 percent excise duty, which is cut from the previous 20 percent when the Finance Act 2023 went into effect on July 29. These bundles also attract value-added tax at a regular rate of 16 percent.
The usage of phones has become a significant source of income for the government because mobile network subscribers additionally pay a 15 percent duty on fees paid for money transfer services [up from a 12 percent duty under the Finance Act].
Additionally, there is an excise fee of Sh50 applied to imported ready-to-use SIM cards.
KRA’s 8th Corporate Plan, a three-year strategic plan, states: “Full integration with internal and external systems in a staged method is envisaged. Such decisions are influenced by past success along with benchmarking against best practices.
For years, the Internal Revenue Agent has kept a close eye on the operations of producers of alcohol and cigarettes, for example. Such businesses are forced to install internet protocol (IP) cameras in their production lines, which are equipped with infrared night vision, a 360-degree rotating view, and the ability to communicate real-time data to Time Towers.
The decision to link with telecoms was made in response to the Internal Revenue Agent’s first three-year streak of missing the target for the fiscal year that ended in June 2023 by Sh107 billion.
This comes after the KRA exceeded its Sh2.273 trillion target by collecting Sh2.166 trillion during the same period. The objective has been set at just under Sh2.496 trillion for the current fiscal year, which ends in June 2024.
The government has the capacity to collect Sh3 trillion in taxes yearly, according to President Ruto, who has stated this on numerous occasions.
At a previous occasion, Dr. Ruto stated that “a major barrier to the realization of our national revenue target is that in practice tax administration has traditionally been a repressive, menacing affair which resembles extortion.”
This kills the desire to pay taxes and lessens the likelihood of a larger tax base, causing Kenya to fall short of its potential for national revenue and depriving its people of essential services and development initiatives.