KRA’s tax systems can be made more business-friendly

In the past, tax collectors and taxpayers relied on rudimentary methods to collect and account for tax respectively.

This made the tax filing day a dreadful one; long queues snaking around the Times Tower in Nairobi, heaps of paper work and frustrated Kenyans who typically wait for the last minute to file tax returns.

But over the years, tax authorities have appreciated the need to simplify tax preparation and remittance in order to maximise cooperation from the taxpayer.

It all boils down to convenience. The Kenya Revenue Authority (KRA) has made major strides to ease remittance of taxes by the due date, a laudable move.

This is in tandem with global practice where tax authorities are now investing heavily in technology to enhance ease of doing business, and, more importantly, to increase revenue collection.

There are numerous claims that Kenya loses between Sh200 billion and Sh400 billion in tax revenues annually. This gap can be reduced through advanced technology and gaining the confidence of the taxpayer.

The KRA is investing in technology in order to monitor tax compliance as well as provide tools to support tax policies. That means tax evaders may soon have nowhere to hide.

iTax system

As a case in point, the KRA recently launched a web-based application that enables taxpayers to do a number of things, including filing returns online, registration of personal identification numbers (PIN) as well as tax and levy payment processing.

The introduction of iTax will have a significant change in the tax environment — in terms of the time spent to prepare and file tax returns, capturing of taxpayer tax data to conduct KRA audits and support tax policies.

The iTax system database capability will enable the KRA to retrieve data, establish non-complying taxpayers and identify tax payments trends.

There is no doubt that iTax is a revolutionary idea set to change how we deal with our tax obligations going forward.

However, the stakeholders — the KRA and the taxpayers — have to work together to strike a balance between their objectives, which is compliance for taxpayers and revenue enhancement while giving assurance of data security and fair use of information provided by the taxpayer for the KRA.

For example, the requirement to furnish the KRA with the original passports for non-resident directors while trying to register and obtain PIN for a foreign branch is unreasonable and stringent.

This is requirement should be removed and disregard.

ERP systems

The KRA has declared that starting August 1 this year they will no longer receive manual return. Taxpayers have to ensure their tax packs are aligned and ready to feed into the iTax system.

That means that taxpayers need to add the iTax forms as one of the key output from their Enterprise Resource Planning (ERP) systems.

The pressure to reduce cost while ensuring tax compliance makes tax professionals spend most of their time on low-value-add compliance and reconciliation activities rather than focusing on high-value-add planning and analysis.

In order to refocus their resources to the high-value-add activities, businesses must consider automating their tax compliance and reconciliation requirements, by tax sensitisation of ERP, enhancement of tax processes and implementation of tax applications.

The end result will be a highly efficient and effective tax department particularly for corporate taxpayers that concentrate on tax planning and tax risk management which in turn drive the value of the company higher.

Even though companies have embraced the use of technology through implementation of ERP systems, such as SAP, Microsoft Dynamic and Oracle, the systems are not fully customised to support Kenyan tax compliance and tax reporting requirements.

Business should thus engage in sensitising the system in order to make it a tax-enabled ERP system.

However, there is no single off-the-shelf system that can cater for all tax requirements hence the need to involve tax technology expertise to design, plan, develop and implement a customised integrated tax management system to meet the tax objectives.

Ms Wambugu is manager, Deloitte East Africa.