Manual tax filers put on notice: Inside Kenya Kwanza's chase for tax payers' compliance data

This is one of the latest proposals tabled as the state looks to bring to an end the manual submission of tax returns, enhance its visibility of tax compliance levels and enable the taxman net the ambitious Sh3.0 trillion targeted by the Kenya Kwanza government.

“Submission of manual tax information to the Commissioner General poses administrative challenges and delays the decision-making process. I therefore propose to the National Assembly to amend the Tax Procedures Act to require the Commissioner General to provide a data management and reporting system that will allow taxpayers to electronically submit standardized and real-time information”, said Treasury CS Njuguna Ndung’u.

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If the Treasury’s proposal sees the light of day, it will be the death knell to the manual filings whose sunset began in 2009 with the introduction of Integrated Tax Management System before being taken a notch higher in 2014 with the rollout of the iTax system which is currently in use.

As of the latest filing of tax returns, KRA reported a total of 5.6 million taxpayers using the iTax system against a total database of at least 7.0 million registered taxpayers.

The proposal is also in line with the Draft National Tax Policy which was made public by the National Treasury in July 2022 and tabled in the National Assembly by Majority Leader, Kimani Ichung’wah, on April 28th, 2023.

The draft policy has proposed the deployment of tax collection agents across the informal economy as the government looks to widen the tax net to incorporate the hard-to-tax informal sector.

Estimations from the National Treasury show that Kenya’s informal economy has a Sh2.8 trillion potential taxable base that is currently not being reached by KRA.

The Draft National Tax Policy also considers the potential integration of KRA’s systems with that of mobile money platforms with a view to tapping into data on transactions that are currently not within KRA’s visibility.

This comes at a time when cashless payments have gained traction in the economy, especially following the outbreak of the COVID-19 pandemic which had the net effect of deepening the penetration of Kenya’s digital economy.

According to data from the Central Bank of Kenya, the total number of mobile-based transactions stood at a staggering 1.2 billion in July 2022, transacting $23 billion that month alone.

The push for real-time data access is akin to what has been happening in the betting sector since October 2022, when KRA began collecting taxes on a real-time basis through the integration of its systems with that of betting firms.

In the betting sector, taxpayers now remit daily transaction taxes at the close of the day’s business.

The government has in the recent past been stepping up measures aimed at any loopholes used through manual filing to deny the exchequer optimal collection of tax revenue.

On May 9th, 2023, KRA issued a public notice directing that effective June 1st, 2023 Value Added Tax registered taxpayers will be required to accept only electronic tax invoices from registered taxpayers in compliance with the Electronic Tax Invoice Regulations of 2020.

“To enhance tax compliance by use of technology, I propose to the National Assembly to amend the Tax Procedures Act to require taxpayers to issue electronically generated tax invoices which can be tracked and traced through the electronic Tax Invoice Management System”, CS Ndung’u says.

The Treasury’s request comes against the backdrop of the Kenya Kwanza government’s maiden Sh3.68 trillion budget for the period between July 2023 and June 2024.

In the current financial year, KRA has struggled with tax revenue mobilization with the latest available data showing that as at close of May 2023, the tax man was short of the Sh2.1 trillion target by a considerable Sh368.0 billion.