How KRA will mint money through cashless matatu fares

Kenya: People who use public transport could be hit with an unexpected tax bill once the new cashless mode of paying for transport is fully implemented.

The Kenya Revenue Authority (KRA) is reportedly working on a framework to facilitate taxation of all passenger service vehicles, matatus and minibuses that carry up to 24 people.

This move is expected to saddle Kenyans with increased fares once the card system becomes operational.

National Treasury Cabinet Secretary Henry Rotich confirmed that the Government had started preparing the laws necessary to facilitate taxation of the revenues matatus receive from commuters.

“We have given the legal framework and the tax laws are very clear. It is law that everybody must pay tax, and the Kenya Revenue Authority is just implementing that law. Nobody should be exempted,” he said.

Budget policy

According to Mr Rotich, the income earned from the matatu sector, as well as rental incomes received by landlords, must be taxed just like revenue from other sources.

“If you are running a matatu, it is just the same as going to a job. That is the rationale, really. We want the Budget policy to cover as many taxpayers as possible, including matatus and landlords,” he said.

Once the cashless system is operational, commuters will pay fares by tapping pre-paid cards on Point of Sale terminals installed in compliant buses and matatus.

The system is already in use in some PSVs like MOA Compliant, which ply Eastlands, Ngong Road and Kikuyu-Waiyaki routes in Nairobi.

According to the Matatu Owners Association (MOA), this has led to a 30 per cent increase in revenue collection.

It is not yet clear what amount the Government intends to deduct as tax from matatu profits, but the industry generates up to Sh400 million in gross revenue on a daily basis, or Sh146 billion annually.

Conservative estimates show the new tax could increase KRA’s annual revenue collection by about Sh20 billion.

KRA Commissioner General John Njiraini had not responded to our enquiries by the time of going to press, but a top official at the revenue body, who asked not to be named because of the sensitivity of the matter, confirmed the authority was planning to tax matatus to increase revenue.

“It is no longer a question of whether, but when. The decision that bus fares will be taxed has already been made,” said the officer.

The fear is that these deductions will be passed on to commuters.

Matatu operators said new taxes for the industry are unfair because they are already overloaded with a myriad of other levies. They added that the Government’s move to tax their income could drive them out of business.

“We have been paying tax. In fact, we cannot operate or be licensed or inspected without paying advance tax. There is a lot of money that we pay. Indirect taxes on our side are very high,” said Mr Simon Kimutai, the chairman of MOA, the industry’s umbrella body.

“The move is creating an impression that matatu operators are not paying tax, which is not the case.”

Mr Kimutai argued that the tax, if implemented, would only hurt those who are already cash-strapped. However, he lauded the new system of collecting fare, saying it would lock out corrupt traffic police officers from the income chain.

Advance tax

Data from MOA shows that a 41-seater matatu pays an advance tax of Sh29,520 per annum, while a 33-seater matatu pays Sh23,760.

A 26-seater and 14-seater pay Sh18,720 and Sh10,080 in advance tax, respectively.

In addition to the advance tax, the matatu sector, which has an estimated 55,000 vehicles countrywide, is subjected to other charges, including insurance, parking, vehicle inspection, fuel levy and Transport Licensing Board (TLB) fees.

According to data from MOA, the insurance fee is set at Sh7,800 per month for a 14-seater matatu and Sh14,700 for a 33-seater.

All matatus pay a uniform inspection fee of Sh1,000 every year.

TLB charges are fixed at Sh3,000 for a 33-seater matatu and Sh2,000 for a 14-seater, and are renewed annually.

PSVs also pay a fuel levy of Sh3 per litre of fuel.

“The matatu industry is bleeding, yet we are at the wheel of the economy,” said Kimutai.

Transport regulations

New transport regulations gazetted by Transport Cabinet Secretary Michael Kamau in September last year stipulate a Sh100,000 fine and a jail term not exceeding one year for those found in contravention of the law requiring public transport vehicles to install the cashless system of payment.

The regulations had set July 1 as the date for the system to take effect.

The deadline passed, however, with the sector’s regulator, the National Transport and Safety Authority (NTSA), saying adoption would be gradual.

This may have delayed the date of taxation of bus fares to an indefinite future, but the decision is not expected to stay in limbo as the Government continues to seek avenues through which to finance part of the Sh342 billion deficit this financial year.

At present, there are three main companies that handle cashless payments for PSVs: 1963 Jinice, owned by MOA; Beba Pay, which is a joint venture between Equity Bank and Google; and Abiria Card, a joint venture of Kenya Bus Service and Kenya Commercial Bank.

There had been industry murmurs that dismissed the cashless matatu fare system as another reactionary Government directive. An even harsher take on it was that the relatively new NTSA was trying to make itself relevant

But whether by chance or design, the Transport ministry may have helped the taxman hit the jackpot.

Even if the exact figure is not yet known, the tax authority is expected to get a modest chunk of the billions of shillings the sector generates in a year.

In addition to beefing up security by having a manifest of all commuters in a vehicle, the cashless system will indicate how much matatu owners have earned. This will give the Government a clearer picture of the monies owed to it.

The Jubilee Administration is flexing its muscles to crack the whip on sectors whose structural operations have made it difficult for KRA to access its rightful share of income.

With a massive Sh1.8 trillion Budget, President Uhuru Kenyatta’s Government is leaving nothing to chance.

Enhanced capacity

The Government expects to collect Sh1.12 trillion in the current financial (2014/15), with the taxman promising to leverage on technology and enhanced capacity to deliver on the set targets.

Of this amount, an estimated Sh1.05 trillion will be Exchequer revenues — which includes taxes; while Sh65.5 billion will be agency revenue — which comes from licence and regulatory fees charged by various Government departments.

“Historically, it has always been difficult to tax people in the informal sector, including the matatus, but with ICT and enhanced capacity we expect KRA to tax all sectors,” said Rotich.

“Generally, our policy is to widen the tax net so that everybody who is not captured is brought in. Administratively, it has been difficult for KRA to tax everybody.”

The technology in the cashless system will help KRA rope in matatu owners, but landlords, some of whom have rushed to court to protest against the taxman’s noose, are yet to be fully netted.

In the last financial year (2013/14), KRA collected a total of Sh2.1 billion from landlords against a target of Sh10 billion, citing capacity constraints and legal challenges.

During the period, the authority profiled 1,800 landlords but was only able to audit 400 due to inadequate capacity.

Though the tax yields from the 400 landlords was projected at Sh4.4 billion, KRA only realised Sh2.1 billion due to slow payments from some landlords, with others seeking legal redress.

“We should be able to bring in technology to track the landlords. We have had some legal challenges, but we are confident that the problem shall be resolved,” said Mr Njiraini.

In the last fiscal year, KRA managed to surpass its revenue collection target by a modest Sh100 million after revising downwards the initial targets for the period, owing to low economic growth forecast and depressed import trends in 2013.

The taxman collected Sh963.8 billion against a newly set target of Sh963.7 billion, with the lower than expected performance of the country’s economy wiping out over Sh12 billion worth of projected revenue collections.

The original revenue collection target was Sh973.5 billion. The revised amount represented a 20.4 per cent increase over the previous year’s (2012/13) collection of Sh800.5 billion.

The bulk of the taxman’s revenues last year originated from domestic taxes, whose contribution to overall collection stood at Sh628.3 billion, or 65.2 per cent.

Large taxpayers put in Sh431 billion, followed by the customs services department at Sh331.8 billion; medium and small taxpayers paid out Sh197.3 billion.

The road transport department performed poorly, generating Sh3.7 billion in revenue against a target of Sh4.4 billion. The sector contributed 0.4 per cent of the overall 2013/14 collection.

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