Banks have blocked the push by the Kenya Revenue Authority (KRA) to integrate its system with theirs amid fears that the taxman could access sensitive personal information like the flow of cash in accounts without guardrails.
The KRA wants access to the data systems of 38 banks in line with a quiet change to the law in December, which gives the taxman powers to compel a taxpayer to integrate its system with that of the authority in fresh efforts to weed out tax evaders and boost revenue by billions of shillings.
Bankers fear that the KRA could use the integration to access customer information unlawfully, exposing them to lawsuits and penalties from the data protection watchdog.
“The process [of integrating] stalled due to the absence of an appropriate legal framework to support banks to share customer personal information,” said Raimond Molenje, the CEO of Kenya Bankers Association, the industry lobby.
To shore up revenue, President William Ruto’s administration has deepened its crackdown on tax cheats and it is expected to be more aggressive following the withdrawal of last year’s Finance Bill after deadly protests that killed over 50 people.
A workshop that brought together KRA officials, the banking community and lawmakers was unable to reach an agreement on how the integration could be implemented without infringing on customer confidentiality, sources told the Business Daily.
The laws offer individuals the right to secrecy and privacy of their data, including their names, locations, phone numbers, biometric data, health status, marital status or any other information that could be used to identify them.
Section 51 (2) of the Data Protection Act 2019 allows data controllers and processors like banks to share personal data with a third party with permission from the individual himself or when it is necessary for national security or public interest.
Section 51 (2) (c) also allows for exemption if the disclosure is required by or under any written law or by an order of the court.
Insiders in the banking industry told the Business Daily that the KRA had been pushing for an integration model similar to the one that lenders have with the Central Bank of Kenya (CBK).
Bankers have resisted, insisting that the integration with the CBK is regulatory and does not give the financial regulator visibility to the identity of the customers.
Banks say they require additional legal safeguards in the wake to the changes made in December via the Tax Procedures (Amendment) Act, 2024.
“The Commissioner may, by notice in writing, require a person to integrate the electronic tax system authorised under section 75 to the system referred to in subsection (1) for the purposes of submission of electronic documents, including detailed transactional data in the prescribed form,” says the Act.
The KRA remains diplomatic in the face of opposition from the bankers.
“We are currently engaging various stakeholders for collaboration in co-creating innovative solutions that facilitate tax compliance,” said the KRA in an e-mail response.
“KRA in the discharge of its mandate ensures compliance with all applicable laws.”
The plan by the Treasury to access sensitive personal data like details of properties owned and bank accounts as well cash transfers on mobile phones without a court warrant was scuppered by the withdrawal of the Finance Bill, 2024.
The Treasury proposed to amend the Data Protection Act, 2019, through the Finance Bill, to allow the KRA unfettered access to sensitive information held by data controllers and processors, including banks, telecoms operators, utilities, schools, land registries and the National Transport and Safety Authority (NTSA).
The Finance Bill, 2024 also proposed to integrate the databases of these data controllers and processors with the KRA’s digital system, known as the i-Tax, in a far-reaching move that legal practitioners have described as “worrying.”
The KRA wants to leverage increased use of data and linkages between its systems with third parties such as banks and mobile money platforms like M-Pesa to monitor taxpayers’ activities, use of Internet-enabled cameras at excisable goods processing plants and full rollout of digital electronic tax registers (ETRs) to grow revenue.
President Ruto last year withdrew the Finance Bill containing the tax increases in response to mass, youth-led demonstrations that have created the biggest crisis of his presidency.
He proposed spending cuts and additional borrowing in roughly equal measures to fill a nearly Sh345 billion budget hole caused by his withdrawal of planned tax hikes.
To ease the pain, Kenya has launched an aggressive crackdown on tax cheats and evaders.
The KRA’s enforcement unit has been using various databases to pursue suspected tax cheats, including bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority (KCCA), which reveals individuals who own assets such as aircraft.
Car registration details are also being used to smoke out individuals who are driving high-end vehicles but have little to show in terms of taxes remitted. Kenya Power meter registrations are also helping the taxman to identify landlords, some of whom have been slapped with huge tax demands.
The taxman has also sought details of suppliers and contractors hired by county governments in the quest to tighten the noose on individuals and firms evading tax.
