The Treasury is seeking exemption for the Kenya Revenue Authority (KRA) to access sensitive personal data like details of properties owned and bank accounts operated by taxpayers without a court warrant in fresh efforts to catch tax cheats.
Treasury Cabinet Secretary Njuguna Ndung’u has proposed to amend the Data Protection Act, 2019, through the Finance Bill, to allow the KRA unfettered access to sensitive information held by data controllers and processors, including banks, telecoms operators, utilities, schools, land registries and the National Transport and Safety Authority (NTSA).
The Finance Bill, 2024 also proposes to integrate the databases of these data controllers and processors with the KRA’s digital system, known as the i-Tax, in a far-reaching move that legal practitioners have described as “worrying.”
“Section 51(2) of the Data Protection Act is amended by inserting the following new paragraph immediately after paragraph (b)—(ba) disclosure is necessary for the assessment, enforcement or collection of any tax or duty under a written tax law,” says the Finance Bill which has been tabled in the National Assembly.
Section 51 (2) of the Data Protection Act 2019 allows data controllers and processors, to share personal data with a third party if it relates to the individual himself purely for personal or household activity and when it is necessary for national security or public interest.
Section 51 (2) (c) also allows for exemption if the disclosure is required by or under any written law or by an order of the court.
But the KRA does not prefer using this provision in pursuing unpaid taxes. It wants to leverage on increased use of data and linkages between the KRA’s systems with third parties such as banks and mobile money platforms like M-Pesa to spy on taxpayers’ activities, use of Internet-enabled cameras at excisable goods processing plants and full rollout of digital electronic tax registers (ETRs) to grow revenue.
The KRA’s enforcement unit has been using various databases to pursue suspected tax cheats, including bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority (KCCA), which reveals individuals who own assets such as aircraft.
Car registration details are also being used to smoke out individuals who are driving high-end vehicles but have little to show in terms of taxes remitted. Kenya Power meter registrations are also helping the taxman to identify landlords, some of whom have been slapped with huge tax demands.
The taxman has also sought details of suppliers and contractors hired by county governments in the quest to tighten the noose on individuals and firms evading tax.
The KRA says a sharp increase in imports of luxury goods and multi-million shilling investments in real estate has opened its eyes to a potentially massive tax leakage, which if tapped could yield billions of shillings in additional revenues to the Exchequer.
The argument is supported by the fact that only a few Kenyans have officially registered as belonging to the high-income earners’ bracket despite the massive growth in conspicuous consumption, especially in Nairobi.
Nicholas Abidha, an advocate of the High Court, wondered why the government allows the taxman to have absolute access to personal data through the Data Protection Act rather than amending Section 60 of the Tax Procedures Act which requires the taxman to first obtain a court order before going after private information.
Section 60 of the Tax Procedures Act, which had once been declared unconstitutional by the High Court, requires the KRA to first get a court order before accessing personal data.
“Instead what it (government) could do, instead of removing the recourse or the milestone of going to court first, is look into what is the problem with going to court. Is it that when they (the KRA) go to court there are delays and these delays are occasioning also a delay in justice?” said Bob Mkangi, a constitutional lawyer and one of the architects of the 2010 Constitution.
Prof Mkangi said that the amendment does not sit well with the constitutional requirement to protect privacy unless there is probable cause, determined by the courts.
Besides identifying details such as names, location, national identification card or photos, the Data Protection Act also expects data controllers and processors to safeguard sensitive information that might identify a person’s DNA, blood type, personal property, marital status, ethnicity or even race.
In 2020, the Court of Appeal reinstated Section 60 of the Tax Procedures Act which compelled firms such as Safaricom to share M-Pesa records with the KRA, schools to share fees payment records and for banks to share clients data or risk being fined Sh1 million or serve a jail term of three years or both should they fail to provide these details to the taxman.
The High Court had frozen this provision in 2018, declaring it unconstitutional.
“They have been using this section but I think quite rarely. It is probably used where they suspect fraud or perhaps all other avenues of gathering information have not worked,” said Nikhil Hira, a partner at Kody Africa LLP.
The Finance Bill also amends Section 59A of the Tax Procedures Act to allow the KRA to establish a data management and reporting system to receive “electronic documents including detailed transaction data relating to those documents.”
“The Commissioner may, by notice in writing, require a person to integrate the electronic tax system authorized under section 75 to the system referred in subsection (1) for the purposes of submission of electronic documents including detailed transactional data in a prescribed manner,” says the Bill.
A person who does not comply will be liable, on conviction, to a penalty of Sh2 million for every month that he or she continues to be in breach.
This is one of the proposals in the 2023 Medium Term Revenue Strategy through which the administration of President William Ruto aims to increase tax collection to Sh2.95 trillion by the end of June next year.
In terms of tax collected as a proportion of annual economic output, Kenya has been underperforming other nations like South Africa, State House said.
