The theme for the 5th Annual Tax Summit hosted by the Kenya Revenue Authority (KRA) on October 16-17 was “Tax Simplification and Digitisation for Economic Transformation.” There were two areas of focus during this summit; the digital economy as well as the digitisation and simplification of tax collection.
First, why do we pay taxes? Taxation is a necessary action in any country to bring about a sense of equality. Taxes are meant to take a scoop off the top from those in plenty and support those without. With the central body being the government, then the provision of services by the government to its public in the health sector, education or agriculture is funded by the tax collected by the revenue authority.
Let us begin by discussing the digital economy. What are some of the challenges being faced in the collection of taxes in the digital economy? For starters, the main known players in the digital economy were the multi-national enterprises (MNEs) who, revenue authorities the world over, as well as the Organisation for Economic Co-operation and Development, all feel, have found a loophole in the taxation of profit.
However, there needs to be the appreciation that a number of multi-national enterprises have now divided roles in different jurisdictions and run the operations from one central location. This may be as a result of the growing possibility of online tools that create seamless online working spaces. The ability to have flexibility in location, means that MNEs need to share facilities and avoid duplication of roles and expenses.
Pooling revenue into one basket allows for efficient distribution of resources. This is also made simpler by use of enterprise resource planning tools making monitoring and reporting simple, fast detailed and efficient. How then can we work with the efficiencies discovered by MNEs?
The next challenge is the fact that many businesses have embraced a B2C model, made possible by the advent of online shopping. The challenge with this is that there are no invoices raised by the customer and no paper trail in the transaction. The supply chain being shortened, means the cost of supply to the end-user is reduced significantly, and for product development and improvement purposes, there is direct and immediate feedback from the end-user. As we look at ways to capture this transaction, we need to support these models that increase efficiencies.
Services provided online that do not require the existence of a nexus, create the need for governments to redefine what a business nexus is.
Businesses are evolving to meet the demands of a digitally savvy public. The revenue authority also needs to update itself to keep up with the digital economy. As was stated during the discussions at the summit, we need to focus on job creation using these digital platforms.
Part of the job creation strategies was to enable the youth start their own businesses and in this way, create employment opportunities. The services that are being offered online by the youth are a result of the fast internet connectivity and high bandwidth that the Kenya fibre cables have provided the market.
The non-payment of taxes by generation that are heavily vested in the digital economy, can be put down to a simple lack of knowledge. Sending them demand notes may not be the solution to getting them to file their taxes. That should be a preserve of tax advisors who will take on the burden of tax planning, educating them on requirements and filing the returns on their behalf.
The essence is to understand the taxpayer, and just as Jaswinder Bedi of Kenya Export and Branding Agency stated during the summit, the KRA should see themselves as shareholders in the taxpayers’ businesses. This demands, therefore, that they not only understand the business that the taxpayer is in but also the character of the taxpayer.
Engaging stakeholders to support their collection of revenue will relieve the burden of revenue targets that the revenue authority has. We all have a role to play in supporting the government operations. As businesses invest in innovation to increase efficiencies, reduce their running costs and shorten their supply chain, so too must the revenue authorities change tac and amend taxing strategies to meet these efficiencies.