The Kenya Revenue Authority (KRA) is banking on intelligence tips by the public to help it expand the tax net as it faces the herculean task of raising nearly Sh900 billion in the second half of the current fiscal year ending June on the back of a double-digit shortfall in tax receipts in the first half ended last month.
The KRA says it expects increased participation by the public in reporting tax cheats and its staff who abet tax evasion and bribery when it finally rolls out a web-based anonymous reporting system within this half, a platform it has been trying to install since 2013.
Under this arrangement, a whistleblower will be assigned a special code to identify her once she reports a tax crime on the website, concealing her real identity.
“We are implementing the web-based anonymous reporting system to enable the public to report tax evasion while remaining anonymous,” KRA commissioner-general Githii Mburu says in a forecast on tax collection for the second half of the fiscal year ending June.
The taxman has been relying on walk-ins or e-mails and telephone calls made through KRA’s Complaints and Information Centre for tips — a technique which has had limited success partly because it requires informants to submit their personal details.
Tax receipts amounted to Sh673.61 billion in the July-December 2020 period, Treasury data shows, a drop of Sh105.72 billion, or 13.57 per cent, compared with a similar period a year earlier when the taxman netted Sh779.32 billion.
The first-half tax collection represents a Sh110.21 billion shortfall on a prorated target of Sh783.82 billion and is the lowest in the period since Sh630.37 billion in six-month through December 2017 when the country underwent a bruising presidential poll whose outcome was disputed by the opposition.
Tax collections were weighed down by depressed corporate sales as a result of an eroded consumer purchasing power, hurting consumption levies such as value-added taxes (VAT) on the back of pandemic tax reliefs.
Mr Mburu is banking on increased compliance enforcement measures of existing and new tax streams, removal of tax reliefs this month except for workers earning a maximum of Sh24,000 and recovering economic activity to help the agency achieve a full-year goal of nearly Sh1.57 trillion.
This means the taxman will have to collect Sh894.03 billion between January and June 2021 to meet the target, with Mr Mburu saying receipts are “expected to accelerate within forecast rates”.
Achieving this ambitious target will mean growing tax receipts by Sh219.88 billion over and above Sh674.15 billion it netted in the second half of fiscal year ended June 2020 and Sh134.85 billion more than Sh759.18 billion collected in January-June 2019 period.
“KRA has intensified compliance enforcement efforts by driving the implementation of the new tax measures including digital service tax, minimum alternative tax (and) voluntary disclosure programme,” the chief taxman said in the outlook statement dated January 15.
“KRA is further intensifying the use of a robust intelligence network to curb tax evasion and the use of technology to support tax collection.”
The implementation of a minimum tax at the rate of one per cent of gross sales, passed by the lawmakers through the Finance Act 2020, is also expected to “bring equity in tax administration” by ensuring all companies, including those making losses, pay tax on their revenue.
The KRA build up its case for the minimum tax by citing findings of its 2019 survey 2019 that suggested more than 90 per cent of 401,306 companies registered for corporation tax failed to pay corporation tax in the year ended June 2019, with only 33,426 firms paying up.
The implementation of the minimum tax on all firms, except insurers and oil marketers, has, nonetheless, irked business lobbies. “The minimum tax is going to be especially destructive for the SMEs and the large companies because they are bringing on additional tax at a point when people are trying to recover from the hit of the pandemic,” said Kenya Association of Manufacturers chair Mucai Kunyiha.
The taxman has also set sights on businesses and persons selling services and goods online in its latest push to bring more taxpayers into its net, backed by the Income Tax (Digital Service Tax), 2020 which was enforced on January 1.
Deals cut online now attract a flat tax of 1.5 per cent on the value of goods supplied and sold online or services offered through digital platforms such as, with the taxman targeting more than 1,000 businesses to register in six months.
Services and goods targeted under the taxes include e-books and movies, music, and games, tickets for live events and theatres, subscription-based media including news, magazines and digital content.
To further expand the tax bracket, the KRA has extended a partial tax amnesty to businesses and individuals who have tax arrears dating five years back to pay up without incurring accumulated interest and penalties.