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Enhance tax compliance through technology

Last week, I was a panellist at the 2nd annual Tax Summit held at the Kenyatta International Convention Centre (KICC) in Nairobi.

In my view, the Kenya Revenue Authority (KRA) has done a laudable job. It was evident that they have been implementing many ideas, especially leveraging information and communications technologies (ICTs) to improve efficiency.

It is uplifting that a public organisation could change a long-standing corporate culture to become attractive both as an employer and as an effective service provider.

KRA commissioner-general John Njiraini and his team have achieved this distinction without upsetting many reluctant taxpayers and irritable parliamentarians.

Many people who attended the conference felt that the organisation has been firm and fair in closing all tax loopholes. Other enforcement agencies like the Ethics and Anti-Corruption Commission (EACC) should borrow a leaf from the KRA.

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They could even do better if the government invests in infrastructure projects in ICTs.

My session, moderated by Oracle Kenya managing director Gilbert Saggia, had fellow panellists ICT secretary Kate Getao and IBM East Africa leader Catherine Mukiira. It delved into those very issues that can help enhance KRA’s revenue collection capacity.

The main theme was how KRA can harness technology advancement for tax administration.

Our discussion centred on two sub themes, namely Embracing the digital explosion: harnessing opportunities in the e-commerce and m-commerce industry in Kenya and Big data: real time data handling, data governance and advanced data analytics.

These two areas also happen to be the biggest headache for any tax collector anywhere in the world, but KRA chose to look at the issues from a fairly positive angle.

It is common knowledge, for example, that thousands of people offer services abroad and are paid, but the tax collector has no visibility of such income.

The only way of knowing that such income exists is through banks and more recently from mobile money data but due to privacy laws, KRA cannot access such data.

There is no need to fight a war that they cannot win easily. Instead, there are many other low-lying fruits.

For a starter, they need to convince the government to develop a National Spatial Data Infrastructure (NSDI) and since the private sector can immensely benefit from this project, it can perhaps be developed through a public private partnership.

It is one project that will not just assist KRA be more efficient, but will help the country leapfrog into a knowledge economy.

In addition, the government needs to implement the public key infrastructure (PKI) in order to enhance virtual security by issuing a single virtual identity.

This, however, may not be a walk in the park in terms of implementation. There may be as many people opposed to building metadata on citizens arguing that if there is a bad government in place, they can misuse the data. In my view, the benefits of such metadata outweigh the risks.

The KRA should be at the forefront of adopting latest technologies such as blockchain - defined by the Economist magazine of October 31, 2015 as “a distributed database that maintains a continuously-growing list of records called blocks secured from tampering and revision” - at several critical registries like for land and financial services.

There is need for the implementation of the PKI initiatives that started way back in 2009. PKI is a form of virtual identification that guarantees cyber security using advanced algorithms. A combination of these technologies could virtually close all the loopholes.

Technology is always used in cases where the citizens do not easily pay taxes voluntarily yet if everybody was compliant, tax rates could drop owing to the fact that the government could encourage greater consumption by lowering tax rates.

When tax is high, the temptation to evade payments is also commensurately high. Similarly, when tax rates are lower, compliance is high. Several studies have concluded that increasing tax rate affects both tax evasion and the willingness to pay taxes.

In big data analytics, it is possible to separate compliant from the non-compliant taxpayers and continue to reinforce the character while building technological capability to deal with the non-compliant taxpayers.

In the long run, it would be cost effective to discriminate and slowly expand the net to effectively deal with the non-compliant taxpayer. It is in everybody’s interest if everybody voluntarily complied and paid taxes.

This, however, is not easy, as it requires great leadership to enforce the law justly and fairly as KRA has demonstrated.

Technology continues to enhance not just efficiency, but compliance too.

The writer is an associate professor at the University of Nairobi’s School of Business.

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