The Kenya Revenue Authority (KRA) has lost a bid to access detailed transactional data on companies such as suppliers and other trade secrets through changes to the law before the National Assembly.
The Finance and Planning Committee of the National Assembly has blocked the legal amendment which would have given the KRA visibility to corporate data beyond financial transactions.
The lawmakers agreed with presentations from a raft of companies, business lobbies, the Law Society of Kenya (LSK) and tax consultancies that the proposal would amount to a regulatory overreach and a breach to data protection law.
“The Committee agreed with the stakeholder and amended that the data to be provided relate to their [companies’] financials, such as sales, and exclude data relating to trade secrets, private information, and, in the case of a subsidiary, information relating to the parent companies,” the Molo MP Kimani Kuria-led committee parliamentary team wrote in its report on Tax Procedures (Amendment) (No 2) Bill, 2024.
The LSK, Kenya Breweries Ltd (KBL), Kenya Association of Manufacturers (KAM), Kenya Private Sector Alliance, the American Chamber of Commerce-Kenya, the British Chamber of Commerce and a host of audit firms argued that the current provisions give KRA sufficient visibility on financial performance of the companies.“
The existing data and information-sharing models with KRA adequately support revenue collection and administration.
Additional measures should be subjected to a regulatory impact assessment before implementation,” KAM wrote in its presentation to the parliamentary finance team.
“Further, KRA will have excessive power to access data outside companies of interest in Kenya. This is illegal and against local and international laws.”
The requirement to share detailed data, beyond tax liabilities, is part of the amendment in the Bill which has empowered the Commissioner for Domestic Taxes to require companies to integrate their systems with KRA’s.
The integration allows the KRA’s data management and reporting system (DMRS), a system the Times Towers following the enactment of the Finance Act 2023 and which allows it to access electronic documents from integrated companies.
The DMRS system was piloted on large betting firms before the law was passed, giving the KRA real-time access to transactions and eliminating self-declarations on sales. Opponents of the latest amendment argued that the KRA will have a free hand to access information beyond sales for purposes of auditing for tax liabilities.
LSK said in its memorandum to the Finance committee that the KRA already has the authority to audit taxpayers and greater visibility of transactional data through electronic Tax Invoice Management System (eTIMS).
“Further integration would be an additional compliance burden. Importantly, it is unclear why the KRA would want to integrate, and there is no requirement for the KRA to explain its reasons to the taxpayer for seeking such integration,” the LSK argued.
The MPs have allowed the KRA to compel companies with annual sales of more than Sh5 million to integrate their systems with Times Towers, limiting the information the taxman will review to financial statements. The committee has, however, lowered the penalty for non-compliant taxpayers from Sh500,000 for every month they fail to comply to Sh100,000 in line with proposals from firms such as Cliff Dekker Hofmeyr (CDH) LLP.
“This proposal would continue a worrisome trend of the KRA's continued invasion of the affairs of enterprises and thus interfere with their privacy,” CDH wrote to the committee.
“It is the view of CDH that the objectives of this proposed amendment as drafted are not clear since it seems to require taxpayers to integrate electronic tax systems (such as iTax and eTIMS) with the Data Management and Reporting System (DMRS) for purposes of submitting electronic documents and transactional data to the KRA which is already done on a real-time basis.”
