KRA spying on bank accounts in tax probe

The Kenya Revenue Authority (KRA) is spying on bank accounts in an effort to crack down on tax cheats, a move that raises questions about the confidentiality of banking transactions.

Lawyers and accountants reckon that the taxman has stepped up its surveillance on bank accounts as it seeks to match the flow of cash against tax remittances.

While bankers deny that they have been sharing clients’ data with KRA in the absence of court orders, the taxman admits to having received financial account records from banks in its race to unearth tax cheats.

Bank clients have always believed that their account details are secret and beyond the prying eyes of the taxman.

“Data, whether bulk and specific, has often been sought from relevant institutions including banks,” said KRA commissioner for Domestic Taxes Elizabeth Meyo “Once obtained, the information is treated with strict confidentiality and only for the purpose for which it was sought."

KRA has hinged its bank accounts espionage on the Tax Procedures Act, which compels third parties to share information with the taxman.

This has seen the KRA issue agency notices, which have led to the freezing of bank accounts and the order to remit tax directly to the authority from clients’ accounts.

"There has been unprecedented agency notices from the KRA to banks that has seen a number of accounts frozen," said Nikhil Hira, a tax expert and director at law firm, Bowmans. "A number of businesses have shut following orders from KRA to freeze their accounts. The freeze is making it difficult for firms to source supplies and pay staff."

KRA declined to provide data on the agency notices it has issued this year. KRA detectives have identified wealthy individuals and companies that owe it an estimated Sh250 billion in what promises to be the biggest crackdown on high net-worth individuals and entities.

The taxman’s intelligence and strategic operations unit, which has a team of about 100 investigators, has in recent months been investigating rich people’s sources of income and expenditure against their tax remittances. It has also been analysing companies’ financial dealings, especially firms doing business with the government and counties, to nab tax cheats by matching their payments and incomes declared to KRA.

"It is therefore important to note that whereas an investigation is a process, agency notice is an enforcement tool to ensure tax compliance," said Ms Meyo.

Suspected tax cheats

Banks now form a key plank in KRA latest approach that emphasises data gathering from third parties like the motor vehicle registration unit, property approval agency and Kenya Power in the war against tax evasion.

The information sought includes account balances and flow of income. This enables authorities check whether taxpayers have correctly declared their income. The Kenya Bankers Association (KBA)—the lenders’ lobby-- insists that customer details on their bank transactions are protected and only released to KRA through a court order.

"There is no information about a customer's account that can be released to a third party without the customer's consent as banks are bound by the confidentiality requirements for customer accounts," said KBA chief executive Habil Olaka. "Any details on customer transactions need a court order."

The KRA enforcement unit has been using various databases to pursue suspected tax cheats, including bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority (KCCA), which reveals individuals who own assets such as aircraft.

Car registration details are also being used to smoke out individuals who are driving high-end vehicles but have little to show in terms of remitted taxes.

Kenya Power meter registrations are helping the taxman to identify landlords, some of who have been slapped with huge tax demands. "To facilitate tax investigations or to enforce compliance, KRA is duty-bound to obtain relevant taxpayer information," said Ms Meyo.

The KRA says a sharp increase in imports of the luxury items and multi-million-shilling investments in real estate has opened its eyes to a potentially massive tax leakage, which if tapped could yield billions of shillings in additional revenues to the Exchequer.

The taxman is racing to bring more people into the tax brackets and curb tax cheats and duty evasion in its quest to meet revenue targets, which it has persistently missed in recent years.

Kenya’s tax revenues for the year to June rose 9.6 percent compared to the previous year to Sh1.49 trillion, but KRA still missed its collection target by Sh91.2 billion due to sluggish corporate earnings, reduced economic activity and a freeze in hiring amid job cuts.