KRA to mine data from telco systems to net tax cheats

Humphrey Wattanga Mulongo

Humphrey Wattanga Mulongo takes an oath of office as the new Commissioner General at the Kenya Revenue Authority (KRA) at the Supreme Court of Kenya on August 24, 2023.

Photo credit: Wilfred Nyangaresi | Nation Media Group

The Kenya Revenue Authority (KRA) will monitor transactions on mobile merchant accounts such as Safaricom’s Lipa Na M-Pesa in real-time after linking its platform with that of telcos, replicating the successes of a similar integration with betting companies in catching tax evaders.

The Business Daily has learnt that the KRA has already made initial steps towards having a round-the-clock view of the trillions of shillings transacted annually on the telecommunications infrastructure with the goal of catching telcos and traders who under-declare taxes.

Draft modalities

The taxman says it has set up a special team to draft modalities of integrating its systems at the Times Towers with those for telcos.

The planned linkage will enable the KRA to have real-time visibility of transactions for taxation purposes in in line with President William Ruto’s directive to “collect every shilling due”.

“The process is in the initial stages of piloting,” David Mwangi, the acting commissioner for the domestic taxes department, said via email.

“The integration with telcos is aimed at enhancing the visibility of real-time transactions and, as a result, provide daily trends upon which compliance measures can be taken to enhance revenue collection.”

But the biggest catch will be traders who have for years under-declared taxes despite making a fortune using mobile money platforms.

Another source at the Times Towers told the Business Daily that the KRA will process the data with a view of netting traders whose transactions on merchant digital accounts such as Safaricom’s Lipa na M-Pesa Pay Bill and Till wallets do not reflect the taxes they remit based on the sales they declare.

“The integration will enable us to have a full scope of all those transactions on digital accounts and, obviously, we expect increased collections based on analysis of those transactions,” the KRA official, who did not want to be identified, said.

The taxman believes some telecom companies undervalue transactions on their networks, resulting in the declaration of lower charges on the sale of airtime and Internet as well as fees for sending and receiving money upon which taxes are computed.

The latest Central Bank of Kenya data, for example, put the value of cash handled by mobile money agents at Sh7.811 trillion for the year ended June, a 4.97 percent growth over Sh7.441 trillion in the prior year.

The taxes are based on fees charged by the mobile network operators rather than the value of transactions.

Telecom operators are some of the biggest taxpayers, with Safaricom perennially topping the list of large taxpayers for timely remittances.

Taxes remitted by the telcos include a 15 percent excise duty [reduced from the previous 20 percent after Finance Act 2023 came to force on July 29] on the sale of airtime and data bundles, which also attract value-added tax at a standardised rate of 16 percent.

Mobile network subscribers further pay a 15 percent duty on fees charged for money transfer services [increased from 12 percent by the Finance Act], making the use of phones a major source of revenue for the government.

Imported ready-to-use SIM cards also attract Sh50 excise duty per unit.

The planned integration for telcos follows a recent phased interlinkage with betting firms where 36 platforms were successfully integrated in the last financial year that ended June, with a further 87 betting companies targeted in the current one.

The KRA reported excise duty charged on betting jumped 116.2 percent to Sh6.64 billion in the year ended June, largely helped by integration while withholding tax from winnings increased 21.1 percent to Sh8.6 billion.

The integration ensures that betting firms remit taxes daily, with systems requiring they compute the dues after midnight every day and send the same by 7am the following day.

The KRA, however, said the aim of inter-linking with telecoms is largely for real-time visibility of sales and not for daily remittances of taxes.

“The mode of operations of the betting and gaming [industry] and telcos differ,” Mr Mwangi said.

“KRA’s 8th Corporate Plan [strategic plan covering three years through June 2024] envisages full integration with internal and external systems in a phased approach. Past success coupled with benchmarking with best practices informs such decisions.”

Once implemented telecoms will join betting and other industries where the the KRA has round-the-clock access to their transactions rather than basing tax calculations on self-declarations.

Operations of manufacturers in alcohol and cigarette production, for example, have been under the 24-hour watch of the taxman for years.

Such firms are required to install internet protocol (IP) cameras in their production lines, which transmit real-time data to Time Towers and have the capability for infrared night vision and a 360-degree rotating view.

The plan to interlink with telecoms has come on the back of the taxman missing the target for the financial year ended June 2023 by Sh107 billion, the first in three years.

This is after the KRA collected Sh2.166 trillion in the period against the Sh2.273 trillion target. The target for the current fiscal year ending June 2024 has been set at nearly Sh2.496 trillion.

President Ruto has on several occasions said the government has the potential to mobilise Sh3 trillion annually in taxes.

“A huge obstacle to the realisation of our national revenue target is that in practice tax administration has traditionally been a repressive, menacing affair which resembles extortion,” Dr Ruto said at a past event.

“This extinguishes taxpayer incentive and diminishes the prospect of an expanded tax base, pulling Kenya backwards from its national revenue potential and denying its citizens critical services and development programmes.”

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