Kenya Revenue Authority (KRA)’s spies have flagged 511 companies and individuals for suspected tax evasion and fraud worth Sh79.3 billion based on intelligence received from bank, mobile money transactions and assets registrations.
The taxpayers on the KRA’s radar were picked from intelligence reports after the spies conducted a series of background checks, lifestyle audits and vetting for the period ended June 2024 in fresh efforts to raise revenue and cut reliance on borrowing.
The profiles of the identified individuals and firms have been forwarded to the Domestic Taxes Department for collection of the unpaid taxes and enforcement unit for prosecution of the tax cheats.
To shore up revenue, President William Ruto’s administration has deepened its crackdown on tax cheats in the aftermath of withdrawal of this year’s Finance Bill amid deadly protests that killed over 50 people.
The withdrawal of Finance Bill 4 forced the government to discard taxes worth more than Sh346 billion, prompting the State to bet on the widening of the tax base and going after tax cheats.
“Assessments worth Sh79,295 million raised on 511 I&SO [Intelligence and Strategic Operations department] profiles sent to DTD [Domestic Taxes Department] and I&E (Investigations and Enforcement department),” says a KRA internal document seen by the Business Daily.
This came in a period when the taxman disclosed it trained 339 staff… “on cloud computing, data analytics, machine learning, ChatGPT Artificial Intelligence Tool and text analytics using the Poly Analyst AI platform” to enhance revenue collection.
The KRA’s intelligence unit has in the past said tax evasion schemes used by companies and wealthy individuals largely range from understating sales to inflation of expenses, which results in lower profits.
Reduced profit translates to lower corporate taxes, which are based on 30 percent of profits posted by local firms.
Some understate salaries paid to workers to reduce PAYE obligations while others overstate the value of purchases of raw materials to claim more VAT refunds.
The KRA is leveraging on increased use of data and linkages between its systems with third parties such as banks and mobile money platforms like M-Pesa to spy on taxpayers’ activities, use of Internet-enabled cameras at excisable goods processing plants and full rollout of digital electronic tax registers (ETRs) to grow revenue.
In terms of tax collected as a proportion of annual economic output, Kenya has been underperforming other nations like South Africa, State House said.
Dr Ruto reckons that government's efforts to boost tax collection were being hampered by unscrupulous staff at the KRA, whom he says spent their time helping corrupt individuals and entities to evade paying.
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 seeks details of suppliers and contractors hired by county governments in the quest to tighten the noose on individuals and firms evading tax.
The KRA says a sharp increase in imports of the luxury goods and multi-million-shilling investments in real estate have opened its eyes to a potentially massive tax leakage, which if tapped could yield billions of shillings in additional revenues to the Exchequer.
The argument is supported by the fact that only a few Kenyans have officially registered as belonging to the high-income earners’ bracket despite the massive growth in conspicuous consumption, especially in Nairobi.
The KRA’s action hinges on the all-powerful Tax Procedures Act 2015 that allows it to access electronic data on taxpayers from third parties without seeking court orders, thanks to changes through the Finance Act 2016.
“Some people have made it their business model where tax evasion is part of their profitability. Those are people we call hardcore tax evaders,” a former top official at Times Towers told the Business Daily in a past interview.
“Once we have established there is deliberate tax evasion, we pass it on to our investigators who investigate and, in some cases, recover taxes or prosecute. But prosecution does not negate paying taxes.”
KRA said it enhanced sharing of information between its spies and detectives and those attached to other enforcement and intelligence agencies.
The multi-agency taskforce, which has a framework of sharing information, includes National Intelligence Service (NIS), Directorate of Criminal Investigations, Financial Reporting Centre, Ethics and Anti-Corruption Commission and Office of the Director of Public Prosecutions (ODPP).
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