New search for tax cheats’ reporting platform launched

The Kenya Revenue Authority (KRA) has started a new search for the supplier of a web-based platform that will enable anyone to secretly report tax cheats and get rewarded for it.

Submission of tenders to supply and install the Anonymous Web-based Intelligence Gathering System (IGS) — commonly known as the whistle-blower network — closed last Thursday and the winner is expected to be announced by end of next month.

This is the second time that the taxman is shopping for a supplier of the tax crimes reporting platform, having initially floated the tender in October 2013.

KRA said it was forced to re-advertise the tender after the initial bidders failed to meet its requirements.

“The authority was unable to progress with the previous tender after all the bidders failed to meet the required threshold forcing its termination,” Maureen Njongo, KRA’s chief communication manager, told the Business Daily.

Anonymous reporting of tax cheats has long been part of KRA’s fight against unreported income and diversion of taxable goods offences, which are estimated to cost Kenya Sh137 billion in uncollected tax revenues annually.

Through the web-based system, the taxman will award people who report tax evaders a fee of three per cent of the recovered funds up to a maximum of Sh2 million and one per cent of the identified taxes (up to Sh100,000).

The reward programme has, however, been clouded with bad publicity over the fate of Charterhouse Bank employee Peter Odhiambo, who supplied information to KRA about tax evading customers in 2004. KRA paid Odhiambo about Sh500,000 for recovered taxes from two of the 800 accounts he disclosed but failed to keep his identity secret.

He was forced to flee Kenya in 2006 and later sued the taxman for exposing him and for failing to pay the full award amount promised, which he calculated at $24,533,683 (about Sh2 billion) based on the wording of the KRA advert offering the reward.

If successful, the new platform will be the latest in a series of far-reaching reform measures the government has recently put in place to increase tax revenues and reduce leakage — including last year’s re-introduction of capital gains tax (CGT).

Mrs Njongo said the taxman expects the winner of the tender to deploy it in readiness for the roll-out in the next financial year. The Ethics and Anti-Corruption Commission has installed a similar system for use by the public to report corrupt public officials.

The IGS will allow ordinary citizens to secretly report tax offences, monitor progress of their cases and communicate with KRA in real-time.

KRA plans to integrate the IGS with the databases of its major taxpayers to facilitate rapid retrieval of tax records immediately a tax offence is reported.

The system will accept and archive telephone call-ins and also let whistle-blowers submit photos and videos as supporting evidence to enable KRA build solid cases against suspects.

READ: KRA, utility firms plan digital records to catch tax cheats

KRA currently relies on walk-ins, e-mails and telephone calls made through its Complaints and Information Centre (CIC) for tax evasion tips.

This system has had limited success partly as it requires informants to submit their personal details such as name, postal address telephone contacts as well as their PIN numbers.

Mrs Njongo said the new system should offer whistle-blowers a secure and confidential medium to report corruption as well as submit any intelligence information to support revenue collection.

“Whistle-blowers will decide whether to remain anonymous in order to protect themselves from possible negative personal consequences or reveal their identity,” she said.

The system, if successfully procured and installed, should help KRA collect more Sh100 billion that leaks passes its dragnet every year straining its collection targets.

A team of economists from the AU and the UN Economic Commission for Africa in February released a report showing that big tax evaders, including fraudulent multinationals and businesspeople cost Kenya Sh137 billion annually.

The report, which was prepared by a team led by former South African President Thabo Mbeki, further warned that Kenya risks failing to meet its Millennium Development Goals unless it seals the revenue loopholes.

KRA last year discovered a transfer pricing racket involving 40 multinational companies with subsidiaries in Kenya.

The taxman’s audit of the firms showed that the culprits regularly used transfer pricing to declare losses, which effectively disqualified them from paying income tax.

The sting operation was reported to have recovered Sh25 billion. The quest to install the whistle-blower platform comes in the wake of increasing complexity of the country’s tax environment with the introduction of new taxes such as the rental income tax that landlords have continued to evade since its introduction in June 2012.

READ: Tax evasion sting recovers Sh25bn from multinationals

KRA estimates that landlords constitute the single largest group of businesspeople whose incomes remain untaxed. The taxman’s quest to raise Sh90 billion from rental incomes in the 2012/2013 financial year managed to net a paltry Sh4 billion.

KRA at some point said it was ready to pay up to five per cent of any rental tax arrears plus penalties to tenants or any individual with information leading to recovery of uncollected taxes.

The recently reintroduced CGT has been highly contentious and could therefore see some unscrupulous individuals try to cheat the system in order to avoid paying taxes on real estate, stocks and land deals.

KRA has also expressed concern over the sharp mismatch between actual wealth — growing imports of luxury items and real estate investments — in the hands of high net worth individuals and what they have officially declared.

“Tax evasion is an underground scheme and, therefore, complex to quantify,” said Mrs Njongo. “IGS will nonetheless provide a platform for intelligence gathering that should assist in apprehending the culprits and curbing tax evasion.”

America’s Internal Revenue Service (IRS) offers whistle-blowers up to 30 per cent of the additional tax, penalty and other amounts it collects, an incentive that has proven fruitful.

The quest to introduce the whistle-blower platform comes of the back increased pressure on KRA to improve its collections to achieve a revised target of Sh1.18 trillion.

The new target represents a rise of 16.4 per cent over the taxman’s collection in the 12 months ended June.

VAT is expected to grow by nearly a fifth to Sh319.5 billion while the income tax is to rise by 15.6 per cent to Sh626.5 billion. VAT and income tax are mainly driven by corporate transactions and profitability.