The taxman has turned his focus on payments made to local doctors by 12 global firms that offer insurance cover to Kenya’s wealthy businessmen and expatriates in the ongoing crackdown against tax evasion.
Kenya Revenue Authority (KRA), in a notice to local insurance brokers, is demanding a record of doctor payments made by the foreign-based insurance companies that include US and European firms to enable it calculate taxes due from medical providers and practitioners linked to them.
The insurance firms include UK-headquartered Bupa International Limited, American-managed health care company Aetna, Allianz Worldwide Care which is headquartered in Ireland, William Russell headquartered in the UK, IHI Danmark a Danish firm and British firm Exeter Friendly Society.
Others are AXA PPP healthcare, a UK private medical insurance provider, InterGlobal Insurance Company, Cigna International Limited, London-based Expacare International and AWS Allianz.
The insurance companies are known for their clientele list of rich Kenyans, businessmen and Nairobi-based expatriates who pay premium rates for international standard healthcare, general insurance and wealth management services.
"The Authority is amplifying its efforts to ensure that all medical practitioners are within the tax brackets to facilitate fair distribution of the tax burden and ensure the payment of commensurate taxes," says KRA in a letter to insurance brokers seen by the Business Daily.
"The purpose of this letter is to remind you to provide the requested data, failure to which you will be in contravention of section 24A of the Tax Procedures Act."
The KRA had earlier this year ordered hospitals, insurance companies and brokers to file information on doctors’ fees payments dating back four years with an eye on tax-evading health professionals.
The notice sent in June targeting doctors, dentists and pharmacists is expected to see the medical practitioners get tax bills dating back to 2015.
The demand for disclosures was based on the Finance Act 2016, which granted the taxman access to third-party data for tax collection purposes.
"We hereby request you to provide data on payments to doctors, dentists, pharmacists and medical service providers. KRA hereby requests for data for the period January 2015 to December 2018. The data should preferably be in Excel format," stated the earlier KRA demand letter.
The taxman, who has perennially missed Treasury-set collection targets, is looking to seal revenue leaks against the backdrop of ever-higher collection targets set by the Treasury.
The Treasury expects the KRA to collect Sh1.938 trillion in tax and other revenue in the current financial year under the newly-appointed Commissioner-General James Mburu, up from the Sh1.58 trillion last year.
Medical claims paid out by insurance companies hit Sh20.44 billion last year, up from Sh15 billion in 2015, according to the Insurance Regulatory Authority data.
Doctors earn up to 40 percent of the net insurance claims in form of fees, according to industry estimates.
That means doctors will be required to pay tax on about Sh8.2 billion that they earned last year.
"Kindly note that, in the case where you don’t make direct payments to the medical practitioners, you will be held responsible for ensuring that the international companies you facilitate provide the required to KRA," says the taxman in the latest notice.
KRA is betting on this data to boost its tax collection by turning the heat on doctors who have either been evading or under-declaring their tax obligations. The big percentage of Kenyans who do not have health insurance cover and pay their medical fees in cash could however make it difficult for KRA to get reliable data on the doctors’ income.
There are about 39,145 registered health personnel in Kenya, according to the 2018 Economic Survey. These include medical officers, dentists, pharmacists and clinical officers.
Tax experts said KRA’s move will help to expand the tax net by passing the burden of enforcing compliance to insurance companies and hospitals.
Nikhil Hira, a director at Bowmans (Coulson Harney LLP) law firm, in an earlier interview said enforcing the demand by KRA could prove difficult for foreign insurance firms that have no tax obligations in Kenya and whose jurisdictions restrict data sharing, particularly those related to medical records.
Mr Hira said, however, the taxman could have an easier time tracking the money trail for Kenyan firms since most insurance companies wire the payments to the doctors’ bank accounts.
"It is an easy way of creating unpaid tax agents and even though it may yield some revenues for KRA, it shifts the burden of enforcing tax on other taxpayers like hospitals which eventually have to find extra resources to manage the increased workload, just like in the withholding tax approach," said Mr Hira.
Through the Tax Procedures Act 2015, the Finance Bill 2016 allowed KRA to access electronic data on taxpayers without seeking a court order.