Giving the KRA better access to taxpayers’ bank accounts has become especially imperative in recent months following the discovery of large sums of cash in individual bank accounts relative to their declared sources of income.
Mr Njiraini said that some partnership is under way with Safaricom and Equity Bank as part of reforms to reduce tax evasion.
Commercial banks have always argued that they cannot disclose an individual’s account details without a court order, as such a move would breach client confidentiality.
The taxman Tuesday said he is banking on a new law that will give him unfettered access to taxpayers’ bank accounts to improve revenue collection.
Kenya Revenue Authority (KRA) Commissioner-General John Njiraini said the proposed law, to be enacted through the Finance Bill in June, is part of the measures the government is taking to tackle rampant tax evasion.
Mr Njiraini made the revelation after he reported a Sh69 billion shortfall in tax revenues for the nine months ended March this year.
The impending change of law is significant as it removes the burden of seeking court orders every time the KRA wants to access details of an individual’s bank account.
“We expect some amendments to the law that will enable us to link up with banks directly, giving us information about businesses and individuals on an ongoing basis,” Mr Njiraini said.
Companies and individuals tend to bank money they cannot spend, an indication of the surpluses in a person’s financial or business operations for which they are required to pay tax.
Most payments are also often paid through bank accounts, offering the taxman an opportunity to demand his share.
Giving the KRA better access to taxpayers’ bank accounts has become especially imperative in recent months following the discovery of large sums of cash in individual bank accounts relative to their declared sources of income.
Jimmy Kiamba, the Nairobi County government’s former chief finance officer, shocked the public after he was charged with corruption on claims that he deposited Sh1.4 billion in his bank accounts over a period of five years despite having a modest monthly salary of Sh85,000 or about Sh1 million a year.
The KRA has sought Sh480 million from Mr Kiamba who it accuses of tax evasion. Mr Kiamba is also facing charges of owning questionable wealth in real estate.
The KRA also recovered Sh15 billion from some 30 companies — an average of Sh500 million from each firm — in taxes they had evaded in the 2014/15 fiscal year through mispricing of goods and services during export-importation.
If enacted, the proposed law will make it easier for the KRA to prove its case against any taxpayer who has not declared all the required information. Bank details would ordinarily show an individual’s deposits, withdrawals and loans as well as any inflow of funds into such an account.
Commercial banks have always argued that they cannot disclose an individual’s account details without a court order, as such a move would breach client confidentiality.
The KRA is currently under intense pressure to increase its collections in the wake of the need to finance major infrastructure and other projects that the Jubilee government promised in the 2013 election manifesto that brought it to power. The target for the year has been set at Sh1.2 trillion — Sh200 billion more than the previous year’s.
“Accessing bank accounts would be a step in the right direction. The authority has to find a way of jumping the hurdle of confidentiality that is found in other laws; may be change some of the laws that touch on banks and the central bank,” said Francis Kamau, tax director at consultancy firm Ernst & Young.
Mr Kamau said a cash or bank audit could reveal tax evasion, money laundering or other crimes such as piracy or hijacking or ransom payments. “It would need to be a concerted effort even with the CBK, the Kenya Bankers Association and the crime investigators because so much can come out of bank or cash audits,” he said.
Money transfer
The KRA could also focus on money transfer platforms that facilitate payments outside the banking system.
Mr Njiraini said that some partnership is under way with Safaricom and Equity Bank as part of reforms to reduce tax evasion.
Allowing the KRA to access bank accounts could also make it unnecessary to levy taxes such as withholding value added tax (WHVAT) by major suppliers to big businesses, the government and related entities.
With the bank details, suppliers to a business and the government would be easily traced by following the money trail and enabling the taxman to have an inside view of the entities that should be paying tax and how much they should pay.
But there are also high chances that it would encourage cash-based transactions and defeat the ongoing transformation of Kenya into a cashless economy.
There is also the danger that such a law could promote parallel banking with the intention of hiding the proceeds of both legal and illegal activities. It would further dent the current (undeclared) attempts by the CBK to combat parallel banking, which was a major factor in the recent fall of Imperial Bank and Chase Bank.
The shadow banking was also the cause of the 1990s fall of Trust Bank where most depositors chose to remain behind the scenes because they were afraid of being unmasked as the large depositors who the taxman could target for audits.
The KRA collected Sh842.5 billion in the nine months to March, amounting to 11.7 per cent growth over the same period in the last fiscal year. In the same period in 2014/15, the KRA collected Sh753.9 billion, showing that it had increased collections by Sh88.6 billion. However, the taxes were below the nine-month target of Sh911.6 billion.
Mr Njiraini said poor performance in the corporate sector had led to low income taxes while the drop in imports caused related duties to underperform by a significant margin.
