Financial institutions are by law expected to demand copies of personal identification number (PIN) certificates when opening individual or company accounts.
The Central Bank of Kenya has notified all buyers of Treasury debt papers to submit their PIN and contact details afresh for forwarding to the taxman in a renewed effort to map the wealth of individuals and companies that lend to the government.
Financial institutions are by law expected to demand copies of personal identification number (PIN) certificates when opening individual or company accounts, but some had over the years fallen behind in updating their customers’ records.
CBK, which last year instructed commercial banks to strictly enforce the requirement, has now joined in with the directive to buyers of Treasury bills and bonds to update their tax details.
Investors in Treasury debt papers are required to open Central Depository System (CDS) accounts with the regulator, at which point they are also supposed to submit their tax payment details.
Tax on interest income earned from government securities is withheld by the regulator before it is remitted to the Kenya Revenue Authority (KRA). “The CBK is in the process of updating investors’ CDS accounts details in order to enhance service delivery and to comply with KRA i-Tax requirements,” says CBK in email notices sent to bondholders.
“Investors are therefore requested to visit the CBK monetary operations and debt management office in Nairobi, or any of the CBK branches in Mombasa, Kisumu, Eldoret or currency centres in Nakuru, Nyeri and Meru to submit their Income Tax PIN certificates and details of their emails and mobile telephone numbers.”
The taxman has set a target to nearly double the number of active taxpayers to seven million in the next three years, relying on its heavy deployment of technological systems installed in recent years.
Banks have already been requiring customers opening new accounts to submit copies of their PINs as a mandatory requirement since mid-last year, while also asking old customers to update copies of their PIN certificates or risk having their accounts frozen.
The Central Bank has cautioned the bondholders to comply with the requirement by March 1.
The updated information is also expected to help CBK clean up its CDS register.
“CBK are supposed to administer this withholding tax, and pay it to KRA using your PIN. If they have not had the PINS before for these investors, one can wonder how they have been remitting the withholding tax, unless they have not been complying with the tax rules,” said Mr Michael Mburugu, a partner at financial consulting firm PKF Kenya. “We suspect they have been lumping it together and paying. So this points to a cleanup to enable them make accurate filings for withholding tax.”
Without the PIN linking the CDS account and the i-tax system, the taxman would also find it hard to know which taxpayer had not filed the withholding tax returns.
Effectively, an investor pumping in millions into government securities could file nil returns, and the KRA would not capture the non-compliance without the PIN link to the CDS and bank accounts.
“It created a fertile ground for people to avoid tax elsewhere. This will seal that loophole,” said Mr Mburugu.
Banks such as Standard Chartered and Barclays have in recent months written to customers asking them to update their contact and tax details, giving them 30 days to comply.
Some businesses have had their bank accounts frozen for non-compliance.
Efforts to get comments from the lenders’ lobby, the Kenya Bankers Association, were unsuccessful as they had not responded by the time of going to press.
Mr Mburugu, however, added that KRA is not by law allowed to use the tax details of investors and bank customers to go on a fishing expedition for tax cheats, and can only access these accounts where a taxpayer is under investigation or audit.
Tougher laws have made it necessary for individuals to link their tax details to most financial transactions.
The Tax Procedures Act stipulates that a person shall state his or her PIN when opening accounts with financial institutions and investment banks, registering a business or company, registering vehicles and title deeds and underwriting insurance policies.
They must also show the PIN when importing goods and clearing them at customs, paying deposits for power connections and when signing contracts for the supply of goods and services to government ministries and public bodies.
Tax procedure reforms are likely to determine whether the revenue body will meet the high collection target, combined with efforts to widen the tax base in the next three years.
In the five months to November 2018, government revenue amounted to Sh633.7 billion against a pro-rated target of Sh677 billion.