City revenue collection takeover game-changer in administration of tax

There was a media buzz recently, following the formal takeover of some functions from Nairobi County, by the national government. The reactions centred on the seeming clawback of devolution gains and county budgetary allocation.

Redistribution of the budgetary allocation was a natural consequence, for the right to this allocation must follow the obligation taken up by the national government.

What some people might have missed is that there’s a new sheriff in town. Kenya Revenue Authority (KRA) will manage the revenue collection function of Nairobi. This has significant implications for tax administration in Kenya and promises to be a watershed in expanding the tax base.

The first and perhaps most obvious result of this change is that the KRA will now have full access to all businesses operating in Nairobi. All businesses need a county permit to operate legally. Guess who will be collecting this fee? The KRA. I reckon the era of traders not paying their county business permit fee is in its sunset. With such access, the taxman can now fully implement the hitherto moribund presumptive tax. It is impossible to see how the KRA will collect the county business permit fee and leave out the 15 percent presumptive tax.

Secondly, all traders will now be within KRA’s radar. Value-added tax collections will likely record a steep growth — what with KRA paying physical visits to the traders’ premises. It is also safe to assume that the number of taxpayers filing returns will also rise dramatically, for KRA will unlikely process the permit fee with outstanding tax returns, including for past years.

Third, the previously difficult-to-tax sectors such as residential income tax should now be an easy pick. When paying for your land rates and on selling property, that all-important rates clearance certificate will likely be pegged to compliance. The land ownership and utility connections, that is, water and sewerage data in itself, will be a treasure trove for KRA, as it fights to expand the number of taxpayers.

I am sure any person seeking to pay fees for building approvals will be facilitated to pay these as efficiently as possible. Not only will the KRA have the requisite data to project tax collectable from commercial and residential developments and capital allowances or tax breaks available to developers but it will also have the opportunity to cross-validate the source of funds for such developments against declared past income and tax liabilities. In other words, it will be near impossible to use the undeclared income for such developments.

With a better view of the county revenues and access to payment details for contractors, cowboy contractors who do not comply with tax laws are effectively on notice. The KRA will also ensure that taxes are remitted on time.

Given KRA’s demonstrated past efficiency, the revenue collections by Nairobi County is also expected to go up. Such an outcome will present a compelling case for other economic hub counties to either up their revenue collection function or outsource it to the KRA. Counties to watch for this include Mombasa, Kisumu, Nakuru, Uasin Gishu, Kiambu and Machakos.

Matters revenue will change and change fast. It passed off as a mere return of some critical operations and functions of Nairobi. This is a game-changer for revenue mobilisation in Kenya.

The writer is an Associate Director with KPMG Advisory Services Limited.