The Kenya Revenue Authority (KRA) is set to install new electronic tax registers at business premises giving it real time access to invoices issued by traders around the country in a new, high-tech war against tax cheats.
Under the proposed system, the KRA will require traders, manufacturers and suppliers to deploy new Internet-enabled electronic tax registers (ETRs) that allow the taxman to track how businesses conduct their invoicing at every turn of a transaction to assess the tax dues on a real time basis.
"KRA is implementing a Tax Invoice Management System to achieve validations and authentications of tax invoices at trader tills before generation of invoices along with their real time or near-real-time transmission," the taxman says of the new system.
The new ETRs will be connected through the Internet to KRA’s systems allowing it to monitor all transactions in the traders' Point of Sale and invoicing systems.
"TIMS is an information technology integration system that will integrate trader systems (Electronic Tax Registers, Point of Sale, and ERP-Billing/Invoicing system) with iTax to monitor the generation of electronic tax invoices and their transmission through the internet to it," said KRA in a notice.
All businesses that have an annual turnover of at least Sh5 million are by law required to have electronic tax registers.
Under the system, the taxman will receive sales data from all registered companies and traders on a daily basis.
Traders will also be required to seek the taxman’s permission to perform any other business the next day of business under the system, meaning incorrect or incomplete data logged in the previous day could lock them out.
"The control unit should send end-of-day summary after all the invoices for the respective day have been transmitted, and before starting invoice transmission for the next day," reads part of the capabilities of the proposed ETRs and the new system that KRA intends to roll out.
Experts said the new technology is expected deepen scrutiny of transactions by traders as they will be required to account for all their trading transactions.
"The idea is to give KRA visibility of the invoicing process by suppliers at an earlier stage and in some way to link purchases to sales to ensure full disclosure of income by taxpayers," said said Nikhil Hira, a tax expert and director at law firm Bowman's Kenya.
"They are going to use technology to enforce tax collection which is probably good."
Although the cost of compliance and procurement of the new devices once they are rolled out is expected to be borne by the manufacturers, traders and manufacturers may opt to pass it to the consumer, experts said further raising prices of these products.
"I assume that once the machines have been sourced, taxpayers will be told to purchase and start using them - of course this means additional cost for taxpayers," said Mr Hira.
The planned deployment has the legal backing of VAT Act 2013, which prohibits the use of hard copy cash sale receipts and invoices.
In the past one year, KRA has implemented a number of systems intended to narrow the options for tax cheats.
These include the new Integrated Customs Management System (iCMS) which traders however want suspended until KRA addresses application challenges and carry out training of the users. The iCMS is a single window system that involves submitting export or import documents into a single-window system and which is expected to reduce clearing time by at least 60 per cent.
It replaced the Simba System, which run on multiple platforms and required multiple points of authentication for users.
The move comes as the taxman, who has perennially missed tax targets, moves to seal revenue leaks against the backdrop of ever higher collection targets set by the Treasury.
The KRA under the newly appointed Commissioner-General James Mburu is expected by the Treasury to collect Sh1.87 trillion in taxes in the current financial year, up from the Sh1.65 trillion it was expected to raise in the just ended financial year.
In November last year, President Uhuru Kenyatta directed the KRA to use the Sh3 billion Huduma Number biometric data to smoke out tax cheats.
"The use of technology as an enabler is an immediate necessity and KRA must incorporate cutting edge technology in all aspects of its operations from customer care to detection of tax evasion. Use of big data to detect revenue trends and to detect leakages should be the norm," said Mr Kenyatta during the KRA 2018 Taxpayers’ Day in Nairobi that recognises compliant taxpayers countrywide.
"I therefore expect that KRA will leverage the benefits of the soon to be rolled out National Integrated Identity Management System as another tool in their arsenal."