KRA slows down on M-Pesa paybills tax register plan, turns focus to SMEs

An M-pesa agent serves a customer along Mama Ngina Street, Nairobi on August 15, 2023.

Photo credit: File | Nation Media Group

The government has slowed down on plans to convert all M-Pesa paybills into electronic tax registers (ETRs), opting instead to focus on small businesses enjoying turnover tax and rental income earners.

The State had earlier planned to convert at least two million digital payment touchpoints into virtual ETRs effective December 25, 2024, a move it said was geared towards sealing revenue leakage in a rapidly growing digital economy.

The Kenya Revenue Authority (KRA) says that the plan to convert the digital payment touchpoints into virtual ETRs has been taken back to the drawing board with the taxman currently undertaking stakeholder engagement.

 “KRA remains committed to leveraging technology to simplify tax compliance and enhance efficiency in tax administration. Among initiatives prioritised for implementation is the integration of digital payment platforms into virtual ETR systems. Stakeholder engagements are ongoing to ensure technical and operational readiness for the virtual ETR system as well as gather input and address any concerns in co-creating solutions. Once this is complete, KRA will communicate to the public,” the tax authority said in its response to the Business Daily.

Speaking at the October 9, 2024 Tax Summit organised by KRA, Moses Kuria, senior advisor at the Council of Economic Advisors, said that the government was keen to improve the visibility of payments taking place in digital platforms, hence the plan to convert paybills into virtual ETRs.

“We have decided that there will be nowhere to hide for anybody. We have a huge advantage with the level of digitisation of our economy and so the basis is already there. Today at KRA, the people who have the ETR devices for VAT are only 200,000, yet combined all our telcos and the banks doing mobile money have two million digital touchpoints for payments. We have agreed that come Christmas 2024 all those paybills will be virtual ETRs for purposes of revenue collection,” Mr Kuria said.

Small businesses enjoying the simpler turnover tax regime and persons earning rental income now form the priority focus for KRA as it races to realise the Sh2.92 trillion ordinary revenue target for the financial year 2024/25.

Turnover tax was introduced in Kenya in 2007 as a simpler tax regime designed to accelerate compliance among small businesses. Currently, businesses whose annual turnover ranges between Sh1 million and Sh25 million are eligible for turnover tax at a rate of three percent.

 “Among initiatives prioritised for implementation is driving compliance for value added tax, monthly rental income and turnover tax by streamlining return filing and simplifying payment processes for improved accuracy and operational efficiency within tax administration,” KRA says in its response to the Business Daily.

According to the National Treasury, monthly rental income tax, which applies to anyone earning rental income of between Sh280,000 and Sh15 million per annum, has the potential of collecting up to Sh100 billion per annum, a far cry from the average Sh10 billion registered currently.

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