The proposal by KRA that has been lingering in many people`s minds is the plan to integrate its tax system with the telecommunication companies, the target being Kenyans who majorly transact via mobile money platforms. KRA will be tracking the 16 percent value-added tax (VAT) on sales as well as the 20 percent excise duty charged on transactions. Customers also pay a 20 percent excise duty on airtime.[1] In the 2023 Budget Policy Statement released by the exchequer on Wednesday for the 2023/24 fiscal year, the government is seeking access to individual and companies’ mobile money transaction records in a move that is intended to open a new front in the fight against tax cheats.[2] According to this year’s fiscal policy, the government aims to increase tax collections by over 17.8% of GDP in the aforementioned financial year 2023–2024 (Sh3 trillion is the planned collection), and above 18% of GDP over the medium term (Sh4 trillion is the targeted collection).[3] If KRA has its way, it will be able to contrast data from tax returns with purchases made using mobile payments. Tax authorities will indicate discrepancies in payments made through Pesalink, Paypal, and M-Pesa as well as returns for tax evasion.
Data on transaction flow on platforms like M-Pesa, Paypal, and Pesalink would be stored by KRA and compared. The data will enable the relevant authorities to keep an eye out for consistency and detect tax evasion on earnings from internet sources. The KRA would be able to tax money from the informal sector by keeping track of M-Pesa transactions. Additionally, it will have the authority to tax activities that most Kenyans refer to as “side hustles,” such as online gigs. According to the MSME statistics, the potential taxable base of the informal sector is KSh 2.8 billion.[4] According to Central Bank of Kenya data, there were 73.2 million mobile money accounts as of November 2022, with the value of transactions standing at Sh639.84 billion. Linking the taxman’s system will give it visibility of real-time mobile money transactions and a rare peak into Kenyans’ lifestyles. According to data from Safaricom, there are around 30 million M-Pesa users compared to 7 million KRA Pin holders. President Ruto’s government is committed to using technology to broaden the tax base and attract more taxpayers.[5]
Section 60 states that the Commissioner or an authorized officer shall, with a warrant, have full and free access to any building, place, property, documents, or data storage device to administer a tax law.[6] In 2018, the High Court ordered KRA to suspend enforcing Section 60 of the Tax Procedures Act 2015. The Court of Appeal has restored KRA’s power to snoop on tax evaders’ MPESA and bank accounts. In a ruling, the court argues that hindering KRA from accessing the information may cripple the agency’s mandate to collect taxes.[7] Furthermore, the court held that KRA would suffer irreversible loss of huge sums of money. The reinstated section of the law will compel third-party firms such as telcos, banks, and schools to share information on persons and firms suspected to be evading taxes.[8] The court ruling issued compels firms like Safaricom to share M-Pesa records with KRA, schools to share fee payment records with the taxman, and for banks to share clients’ data.[9]
The decision to access m-pesa transactions may not have the effect that KRA may intend. Many people have become dependent on mobile transactions as a way to evade the payment of tax. Some merchants encourage clients to send money directly to their own M-Pesa wallets to avoid paying taxes on pay bills.[10] One cannot help but be afraid that snooping on mobile transactions and using the data to tax people may lead to double taxation. Furthermore, one could argue that the mobile transactions of an individual are not a true account of the individual`s income. The insistence of KRA to have access to mobile transaction data may have the effect of limiting the number of transactions that are done through m-pesa. People who look to evade taxation may return to dealing in physical cash transactions. This may deal a huge blow to the telecommunication companies not to mention the Kenyan economy that has been hugely dependent on M-pesa.
Collins Tieni is an LLB student, JKUAT-Karen. tienicollins18@gmail.com
References
Eli K, KRA to Monitor Kenyans’ Mobile Money Wallets to Ensure Tax Compliance, (2023) available at[https://www.tuko.co.ke/kenya/491097-kra-monitor-kenyans-mobile-money-wallets-ensure-tax-compliance/] accessed on 19th January 2023
Gitogo W, KRA to Snoop on MPESA and Bank Accounts, The Kenyan Wall Street, (2020) available at
[https://kenyanwallstreet.com/kra-to-snoop-on-mpesa-and-bank-accounts/]
accessed on 19th January 2023
Kimuyu H, Nowhere to hide: KRA to start monitoring mobile money to reduce tax evasion, Nairobi News, (2023) available at
[https://nairobinews.nation.africa/nowhere-to-hide-kra-to-start-monitoring-mobile-money-to-reduce-tax-evasion/]
accessed on 19th January 2023
Kiplagat S, KRA gets back powers to spy on tax evaders, Business Daily, (2020) available at
[https://www.businessdailyafrica.com/bd/economy/kra-gets-back-powers-to-spy-on-tax-evaders-2288532]
accessed on 19th January 2023
Omondi D, KRA to track mobile money transactions in tax cheats purge, Business Daily,(2023) available at
[https://www.businessdailyafrica.com/bd/economy/kra-to-track-mobile-money-transactions-in-tax-cheats-purge-4091688]
accessed on 19th January 2023
[1] Dominic Omondi, KRA to track mobile money transactions in tax cheats purge, Business Daily,(2023) available at
[https://www.businessdailyafrica.com/bd/economy/kra-to-track-mobile-money-transactions-in-tax-cheats-purge-4091688]
accessed on 19th January 2023
[2] Hilary Kimuyu, Nowhere to hide: KRA to start monitoring mobile money to reduce tax evasion, Nairobi News, (2023) available at
[https://nairobinews.nation.africa/nowhere-to-hide-kra-to-start-monitoring-mobile-money-to-reduce-tax-evasion/]
accessed on 19th January 2023
[3] ibid
[4] (n1) KRA to monitor Kenyans
[5] (n3) KRA to track mobile transactions
[6] Tax Procedures Act 2015.
[7] Wandiri Gitogo, KRA to Snoop on MPESA and Bank Accounts, The Kenyan Wall Street, (2020) available at
[https://kenyanwallstreet.com/kra-to-snoop-on-mpesa-and-bank-accounts/]
accessed on 19th January 2023
[8] ibid
[9] Sam Kiplagat, KRA gets back powers to spy on tax evaders, Business Daily, (2020) available at
[https://www.businessdailyafrica.com/bd/economy/kra-gets-back-powers-to-spy-on-tax-evaders-2288532]
accessed on 19th January 2023
[10] (n4) Nowhere to hide
