Nowhere to hide as KRA seeks to spy on taxpayers to boost revenue

On January 9, 2024, M-Pesa services across the country crashed for several hours, leaving millions of subscribers unable to transact. 

Later, Safaricom sought to reassure users that operations had resumed and to dispel online rumours that the system downtime was as a result of the firm integrating its network with the Kenya Revenue Authority (KRA) iTax system. 

“The issue has been resolved and everything is fine and we do not anticipate any problems going forward,” said Esther Masese, Safaricom chief financial services officer.

“Let me be clear that there was no integration. KRA themselves also publicly said that there was no integration happening between M-Pesa and KRA. KRA is a separate business entity and Safaricom, and M-Pesa specifically is a different business entity. We cannot share the data of our customers.”

But this assurance now appears less convincing as KRA rolls out a mass digital surveillance programme  as part of efforts to boost revenue collection. 

This week, the taxman issued directives to the heads of commercial banks asking them to facilitate the integration of their networks with the iTax platform.

According to the Kenya Bankers Association (KBA), commercial banks are currently weighing the implications of the directive and the impact it will have on their operations.

“Yes, KBA members have received communication from the KRA regarding potential system integration,” KBA acting Chief Executive Raymond Molenje told The Standard yesterday.

“At this stage, we are reviewing the details internally to ensure that all technical and operational considerations are well understood.”

This comes days after a similar communication was issued to telecommunication service providers and mobile phone dealers.

Starting next year, the government will have a database of all mobile phones in Kenya indexed by their unique 15-digit IMEI numbers. This will provide the government backdoor access to the phone users activities including location patterns, transaction and communication history.

The government has for a long time sought to increase revenue collections and cut on instances of tax avoidance.

“There are only seven million people with KRA PIN numbers,” said President William Ruto last year. “At the same time, in the same economy, Safaricom M-Pesa has 30 million registered customers transacting billions daily.”

National Treasury and Economic Planning Cabinet Secretary John Mbadi says the government is developing a new system to allow KRA access to taxpayers’ income.

According to him, the existing systems including iTax and ICMS for customs used at the country’s airports and border points are not working. As such, the government is missing out on revenue from the earnings of landlords and independent professionals.

Additionally, revenue collected from Value Added Tax is below the country’s potential, which Mbadi puts at six per cent of its Gross Domestic Product, but now stand at just 3.8 per cent.

“This is because tax visibility is a challenge. We are developing a system that must enhance tax visibility,” he said during the KRA Annual Tax Summit, 2024. “On rental income tax, we are only collecting Sh17 billion per year yet we have the potential of Sh100 billion.”

However, the now directives have raised concern over personal data violations. 

Last year, the KRA proposed amendments to the Data Protection Act, 2020, to exempt the taxman from provisions of the law. The suggestion was met with stiff opposition, with dozens of business lobbies, law firms and citizens asking Parliament to delete the proposal. 

“Data processing for tax purposes involves data sharing with other State agencies or tax authorities in other countries for tax enforcement purposes,” said Amnesty International in submissions to Parliament. 

The Kenya National Chamber of Commerce and Industry said changing the Act in favour of the taxman would set a precedent for the exemption of other institutions and erode the purpose of the Act. 

“It is the KNCCI’s submission that there is no problem with the current system of obtaining information from taxpayers by the revenue authority using court orders when seeking information from a taxpayer,” submitted the business lobby.

The government also says that there is a need to simplify tax laws and develop a different set of policies or rules for small businesses. 

Ashif Kassam, a KRA board director, explains there is a lack of specificity of laws concerning the landscape of the economy which is largely made up of small enterprises.

“Is there any Tax Act in Africa or East Africa that deals with MSMEs? We have one line of Turnover Tax and we think everyone is going to follow it,” he said during the recent KRA Tax Summit. “We need a document or tax laws tailored specifically for MSMEs, whether as a separate Act or clear guidance.”

KRA Commissioner for Domestic Taxes Rispar Simiyu revealed that KRA is undergoing a re-organisation to make it a fit-for-purpose agency possibly with a friendly demeanor unlike how it is viewed today, to encourage compliance by businesses.

“The question we should ask is: should we (the enforcement department) be the first point of contact or the last resort? How do we do it? By the time I come to you as enforcement, how many boxes have I ticked?”

She noted that some of the efforts to ensure compliance, especially on businesses have not borne the expected fruits even as she pointed out on how informal the Kenya economy is.

“Sometimes when you narrow in, the informal sector is not necessarily informal, only that some would opt to appear so,” she said.