KRA goes for new devices to watch over the taxpayer
Using an ETR machine KRA will be introducing new cash registers with GPRS. File
What you need to know:
GPRS is a wireless communication service that can be used to remotely monitor the location of devices as well as send back data to a control room with a go-between service provider.
All transactions will be automatically relayed to a KRA central server as soon as they are made.
KRA is currently running a pilot project before the countrywide rollout.
Businesses will foot the cost of the new machines or upgrades.
A similar technology proposed for trucks was suspended and the case is currently in court.
Kenyan businesses will soon start paying taxes with the big brother watching over their shoulders as KRA moves to recruit new taxpayers and curb revenue leakages in its system.
Kenya Revenue Authority (KRA) is piloting for full-scale deployment of new electronic tax devices (ETRs) that transmit real time data every time a transaction is made – putting the taxpayer under the taxman’s view at all times.
The devices, which are General Packet Radio Service (GPRS)-enabled, also give the taxman the ability to tell the location of each tax register, removing the risk of loss of revenue in the event that such a register is stolen.
The Electronic Fiscal Devices (EFDs) automatically relay data to a central server at KRA every time a transaction is made for tabulation and safe keeping in readiness for reconciliation with actual tax returns at the end of each month.
The new technology is expected to save the taxman millions of shillings in operational costs and help mop up billions of shilling lost through tax evasion.
GPRS is a wireless communication service that is used to remotely monitor the location of devices and to send data to a central location.
“The technology gives KRA real time records of all payments made or received prior to the filing of tax returns,” said KRA spokesman Kennedy Onyonyi.
“The value of these devices to us is that they eliminate the risk of losing revenue in the event that an ETR machine is stolen from a taxpayer’s premises because KRA will have all the information in its server.”
KRA says use of GPRS technology has helped other tax authorities to significantly increase revenue as well as the number of taxpayers, giving the example of Bulgaria where the technology is used to monitor sales in petrol stations.
“Initially, the number of registered petrol stations in Bulgaria were 3,000 but this shot up to 3,320 with the introduction of GPRS,” Mr Onyonyi said.
Parliament prepared the ground for introduction of the new tax registers when it amended the Value Added Tax law through the recently-enacted Finance Act 2012, scheduling the implementation date as May 2.
“...the Commissioner may in, accordance with the regulations, require any person to use a (GPRS) electronic tax register of such type and description as may be prescribed,” reads the amended Seventh Schedule of the VAT Act.
This means KRA has the legal backing to introduce the devices any time it sees fit but the taxman on Thursday said piloting of the plan was on course and will have to end before full implementation.
Use of GPRS-enabled tax registers was initially proposed by Parliament’s Budget Committee late last year.
The committee had argued that adoption of wireless connectivity between businesses and KRA would help enhance cash flow and curb fraud.
The committee also argued that the system would help KRA to bring in thousands of small traders into the tax net, curb tax evasion, save costs and enhance collection of VAT.
Use of the new devices comes months after President Kibaki ordered a crackdown on tax cheats and urged firm action on KRA officers who abet the crime.
KRA is estimated to have lost tax revenues worth more than Sh200 billion in three years to informal sector operators out of the tax net.
Martin Masinde, a fiscal analyst with the Parliamentary Budget Office, early this month indicated that inability to tax the informal sector had cost the government Sh63.5 billion, Sh69.73 billion and Sh79.27 billion in 2006, 2007 and 2008 respectively in missed revenues.
KRA hopes the new tool should help rope in thousands of these small traders and increase revenues.
Introduction of the new devices is however expected to meet strong opposition from businesses as was the case during the introduction of the ETR machines four years ago.
The taxman had initially required traders to buy the equipment upfront and to recover the cost from future tax payments but the offer has since lapsed with all current purchases being borne by the businesses.
Geoffrey Karuu, a tax partner with Ernst & Young, said that whereas manufactures have suggested they can upgrade the existing machines, the taxman should meet the cost because this is an efficiency issue that helps him do his job better.
“It is only prudent that businesses should be given a special window within which they will not pay as was the case with ETRs,” he said.
The taxman said on Thursday that taxpayers will pay the price of acquiring the new devices, limiting his role to approving them.
“Most ETR machines currently in use have almost exhausted their lifetime of five years or 1,800 reports and it is only fair that they should be asked to buy GPRS-enabled ones while replacing them,” said Mr Onyonyi.
Ashif Kassam, the Chief Executive Officer of RSM Ashvir — a regional tax and audit consultancy — said that the new devices should only be introduced after a proper assessment has been done to ascertain what they will cost the taxpayers compared to the revenue that is expected to come from the untaxed businesses that KRA intends to bring on board.
“Monitoring the location of ETR machines for purposes of getting real time data should come second to locating non-compliant businesses,” said Mr Kassam adding that the taxman should make the transition least painful to those who have ETRs and are already compliant.
Tax experts warned KRA to tread carefully with the proposed changes as designating the cost of the upgrade to taxpayers could become another dissuading requirement for businesses and potential investors.
Transporters opposed a similar plan to introduce electronic cargo tracking systems (ECTS) for long-distance trucks in 2010, paralysing the sector for weeks.
They went on strike after they and KRA failed to agree on who was to meet the cost of installing the devices, what the devices would cost and their sourcing from one supplier - Navisat Telematics.
“Public education is crucial to the success of any new plan and KRA should have started doing this as soon as the new requirement became law,” said Mr Karuu.
The taxman’s collected Sh498.6 billion in the first nine months of the current financial year against a target of Sh519.9 billion, leaving a revenue deficit of Sh21.3 billion.
KRA attributed the shortfall to the removal of excise duty on kerosene, diesel, cereals and the change in VAT withholding regime.
Out of the total collected, Sh97.5 billion came from indirect taxes against a target of 126 billion.
Tax revenues from petroleum and international trade were Sh49.6 billion and 176.2 billion respectively, representing Sh3 billion and Sh6.8 billion shortfalls respectively.
Only direct domestic taxes were above target having increased to Sh216.5 billion against a Sh202.6 billion target.
KRA says full implementation of the Finance Act, the easing of monetary policy and its impact on consumption and investment, as well as government’s expenditure will determine its performance in the fourth quarter of the year.
“The shortfall in revenue collection will affect the implementation of the budget as some of the planned activities will not be funded,” noted the Controller of Budget’s office.
The Treasury has since eased the taxman’s financing deficit with an increase in his annual budgetary allocation by Sh1.1 billion in the year to June 2013.
KRA will receive a total of Sh11.7 billion to run its operations in the year to June 2013 up from Sh10.6 billion.
