The taxman has kicked off a major drive to bring small businesses, consumers and beverage makers into the tax bracket as it seeks to achieve the ambitious Sh973.5 billion target set by the Treasury.
The Kenya Revenue Authority (KRA) has put in place a raft of new measures, which if successfully implemented, will see firms and even consumers who have avoided paying taxes regularly fork out cash to Times Tower.
KRA commissioner-general John Njiraini said on Wednesday the authority is implementing third-party data mining and physical mapping of small businesses across the country. The country has around nine million small and medium-sized enterprises (SMEs).
“For third-party data mining, our officers are tracking money transferred by mobile phone services and transactions made through financial institutions before we ask parties involved to pay taxes due,” Mr Njiraini said.
The measures come as the taxman announced total revenue collection of Sh800.4 billion in the 12 months to June, falling 9.1 per cent short of the initial target of Sh881.2 billion.
On Wednesday, the KRA officials released 2012/13 financial year performance figures indicating that medium and small tax payers yielded on Sh165 billion in taxes.
“This is going to be a long process because we don’t have adequate staff to be everywhere at the same time but we are going slowly from block to block until the whole country is covered,” said Mr Benson Korongo, a senior assistant commissioner in charge of medium and small taxpayers.
The plan targeting the SMEs is being rolled out alongside other initiatives that include mapping out real estate owners and sealing tax loopholes.
Mr Njiraini said KRA’s plan to automate its entire domestic tax system will lure many citizens to remit taxes. The taxman will also launch its iTax platform next month, creating a mobile platform for filing returns and paying taxes.
The taxman is also set to complete its project of remote transmission of electronic tax registers (ETR) data by end of this year. Once launched, entries made on the ETR will reflect real-time on KRA data system.
Another measure will see KRA enforce stricter compliance in payment of excise taxes among all beverage firms with the requirement that the manufacturers affix excise stamps on their products from early next year.
Among those targeted in the new move are manufacturers of beer, juice, bottled water, and soft drinks in what the KRA estimates will generate an additional Sh6 billion in excise taxes annually.
Manufacturers of these goods have been paying excise taxes but they have not been required to use the stamps that currently apply to producers of cigarettes, wines and spirits.
Expansion of the use of excise stamps is part of KRA’s strategy to curb revenue losses through contraband trade in the products.
“Excise stamps will be extended to other beverages. This has proved successful in other markets like Brazil,” said Mr Njiraini.
The move is part of the taxman’s move to tighten collection of excise duties that account for more than 10 per cent of total annual tax collections.
Introduction of excise stamps on juice, sodas, and bottled water has raised fears of increasing operating costs for producers of these goods but KRA has allayed the concerns.
Tax experts say the excise stamps should not be extended to producers of non-alcoholic drinks since this will unnecessarily impact their operations besides raising compliance costs.
“Excise stamps are effective when used on high value goods like cigarettes that are the main targets of counterfeiters,” said Rajesh Shah, a tax specialist at PricewaterhouseCoopers (PwC).
“Illegal trade in water and soft drinks is minimal. It is neither cost-effective nor practical to attach excise stamps on these goods,” he said.
Mr Njiraini, however, said that there will be no additional cost to manufacturers now brought under the tax administration move, adding that they will only incur their excise tax obligations. But obviously they will be in the income tax bracket.
The broadening of the tax administration measure comes at a time when KRA is moving to have the excise stamps attached to goods at the factory level in a move aimed at fighting the use of fake stamps.
This means that the taxman will now have information on production volumes for the various products, a move that will lead to a better reconciliation between the excise taxes declared and expected payments based on actual output.
KRA has piloted the system among tobacco firms including British American Tobacco and Mastermind awaiting replication of the system to all the beverage manufacturers.
“This allows us to reconcile the tax declared and actual production. We plan to start the production audits early next year,” said Pancrasius Nyaga, the commissioner of domestic taxes-large tax payers office.
He added that the move will enhance compliance among genuine manufacturers, with the introduction of new high-security excise stamps in April also expected to curb tax evasion among dealers in original and counterfeit goods.
Meanwhile failure to enact the VAT Bill — which would have scrapped a number of exemptions from the consumption tax — last year saw KRA lose Sh11 billion.
“The VAT reforms will lead to a simple and efficient tax compliance system besides raising revenue collection,” Mr Njiraini said, adding that up to 80 per cent of the time taken to comply with taxation is taken up by VAT alone.
It remains to be seen how the National Assembly will treat the proposed amendments to the consumption tax, with some politicians calling for exemptions on essential goods to be retained.