Economy
KRA enlists big companies to arrest wealthy tax cheats
Wednesday March 08 2023
Times Tower in Nairobi, the headquarters of Kenya Revenue Authority. FILE PHOTO | DENNIS ONSONGO | NMG
Big companies will be penalised for doing business with suppliers not listed on the electronic tax invoice registry in fresh efforts to weed out tax cheats and boost revenue.
The Kenya Revenue Authority (KRA) says it will not accept invoices from suppliers not captured in the electronic tax invoice management system (e-TIMS), an Internet-enabled tax register that relays real-time sales data to the taxman for firms registered to collect value-added tax (VAT).
Now, the authority is seeking all suppliers to be listed in the e-TIMs, expanding the registry’s mandate beyond VAT.
Read: KRA to track mobile money transactions in tax cheats purge
With this new system, the KRA will not recognise expenses paid to suppliers not captured in e-registry, reducing a firm’s costs and inflating profits that ultimately increase their tax obligations.
It is aimed at bringing on board small and medium businesses that are sometimes outside the tax net.
The proposed regime will also help the KRA push traders to pay their fair share of taxes, part of a raft of measures to repair the Treasury’s coffers.
The government plans to increase tax collection by 17 percent to Sh2.57 trillion in its fiscal year starting in July.
Mr George Obel, the deputy commissioner for medium taxpayers at KRA, said the taxman would require a registry of suppliers before firms supplied with goods and services can claim the expense as a cost.
“So they (registered taxpayers) will insist you must be registered. When you compel everyone to register, you will start bringing out those people who are hiding,” he said.
The taxman hopes the registry of suppliers will help it address the problem of fictitious invoices that it claims in various court cases saw it lose close to Sh30 billion.
Known as the “Missing Trader Scheme” within the tax circles, the KRA investigators estimate that about Sh65 billion worth of fake invoices were issued since 2015, with the peak being in 2016 when Sh32 billion worth of fake supplies were done.
The KRA also wants to use the new system to recruit more VAT agents, noting that there are many businesses with a turnover of more than Sh5 million a year, the threshold for collecting VAT on behalf of the KRA, but which have not been registered because their transactions have not been visible to the KRA.
Mr Obel noted that the KRA wants to push up the number of VAT-registered agents to more than 300,000 from the current 113,239, even as the government targets the pervasive informal sector that has been tax compliant.
The informal sector is one of the potential areas that the taxman is targeting to ramp up its revenues, with President William Ruto giving it a target of Sh4 trillion in the medium term.
Through eTIMS, the Treasury reckons that it has the highest potential for growth in its ambitious plan to expand revenue to Sh3.8 trillion by 2027.
However, there are fears that this proposal will create discrimination in the business world, with large registered corporates only doing business among themselves, hurting small businesses, for example, a small-scale farmer who supplies sorghum to the East African Breweries (EABL), according to Robert Waruiru, a tax expert.
“They need to come up with a threshold,” he said.
Nikhil Hira, a partner at Kody Africa LLP, an audit and accountancy firm, said that while it is easier for the system to be extended to other tax heads, the KRA will have to do a lot of coding so that legitimate expenses are not denied.
“It really is good to recognise this is not subject to VAT but it is a legitimate expense,” said Mr Nikhil, fearing that banks might also be forced to be VAT agents.
Some of the expenses that might be hard to capture, noted Mr Nikhil, include bank charges and interests, for which banks might be forced to report all of them.
The KRA is racing to bring more people into the tax bracket and curb tax cheating and evasion in the quest to meet targets.
The KRA is flagging wealthy individuals that have been hiding their sources of income while engaging in luxury spending and accumulation of property, including the purchase of homes and big cars.
Read: War on rich tax cheats yields Sh103 billion
The taxman has been using various databases to pursue suspected tax cheats, among them bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority, which reveal individuals who own assets such as helicopters.
