The Kenya Revenue Authority (KRA) has in the recent past attracted the public eye after the commissioner-general said its officers were observing and analysing social media posts and evaluating lifestyles displayed against tax declarations made by those individuals.
This has elicited debate over the extent to which the taxman can pursue an individual’s personal life to curb evasion and catch cheats. Some parties have raised concerns on the potential violation of privacy rights.
All these are genuine concerns, but it should be noted that KRA has unfettered power to inquire into the affairs of a person under any tax law. To achieve this, officers can have full access to all lands, buildings, places to inspect goods, equipment, devices and records.
But how can the revenue authority embed a long-lasting culture of compliance among existing taxpayers and encourage voluntary enrolment into the tax bracket by individuals who are non-compliant?
According to Jeffrey Owens, a former director of the OECD's Centre for Tax Policy and Administration, modern tax administration requires 90 percent voluntary compliance by 90 percent of taxpayers to achieve revenue needs of a country.
Three major themes have emerged as key drivers of a modern tax administration. These are transparency, trust and technology commonly referred to as the three T’s. This is driven by a shift in global tax landscape and framework.
Recent years have witnessed growing attention into tax affairs of organisations. This has largely been focused on multinationals that have operations in several jurisdictions. The emergence of Panama papers raised public interest following allegations that some organisations and individuals were involved in schemes to avoid paying their fair amount of tax.
It led to the emergence of additional requirements such as Country-by-Country reporting, which aims to provide tax authorities with additional information on organisations’ cross-border transactions. Additional disclosures include beneficial owners of companies and shareholders where the same is held through nominees.
It is a generally accepted fact that trust is hard to build and easy to lose. It can, however, reduce the cost of tax administration since in an environment where there is trust, taxpayers tend to be self-driven and voluntarily declare their obligations.
One of the critical issues that has been shown to foster voluntary tax compliance include ability of the government to demonstrate good and productive use of taxes to improve the welfare of citizenry.
Reduction in cases of corruption also inspires trust in the use of public resources, which in turn encourages individuals to comply.
Other aspects that have over time been instrumental in building trust in the revenue authority is certainty and clarity of tax obligations, ease and reduction of the cost of compliance.
Technology has emerged as a key enabler in the public and private sectors. In the former, data and technology are being used to support the delivery of efficient public services that meet the needs and expectations of wananchi.
Digital transformation is driving accessibility to public services and lowering the cost of these services. The KRA has in the recent past invested in technology such as iTax, which enables taxpayers to file returns and pay seamlessly. The tool also enables it to interact with taxpayers.
Other digital trends such as artificial intelligence, automation, robotics, machine learning are likely to improve revenue collection and cut corruption due to reduced contact between tax officials and taxpayers.
One of the unintended consequences of technology and basically digital transformation is the shift in the balance of power from taxpayers to the tax authorities due to the immense volume of data that authorities will have at their disposal.
By and large, KRA must adapt and continuously seek to become a modern tax administration to ensure that it meets the needs of all stakeholders and deliver its core mandate of collecting taxes in the most seamless and efficient manner.
Robert Maina is a senior tax manager at Ernst & Young