KRA to monitor telcos’ daily sales in tax evasion fight

Kenya Revenue Authority (KRA) Commissioner General Githii Mburu during the International Customs Day commemoration at the authority’s headquarters on January 26, 2023. PHOTO | DIANA NGILA | NMG

The Kenya Revenue Authority (KRA) has flagged mobile telecom operators for possible under-declaration of airtime, Internet and mobile money transaction sales as it seeks to monitor the firms’ revenues on a daily basis.

The taxman said the planned integration of its tax system with telcos, which are amongst the biggest taxpayers, will give it real-time access to the transactions with the intention of compelling the firms to remit taxes daily.

The taxman says the plan to link its tax collection system to mobile financial platforms will allow it to access till and pay-bill accounts of traders to weed out cheats.

KRA commissioner-general Githii Mburu said the telcos are the next stop for integration of tax systems after a successful pilot with betting firms.

Read: KRA nets Sh174m in digital service taxes in six months

“Telcos pay a significant amount of taxes, but we believe there’s much more opportunity and scope if we are to integrate and monitor that on a daily basis using technology. We are also going to receive taxes daily from those telecommunications companies and ensure we have the full scope of transactions in that space,” Mr Mburu said on Thursday.

“Once we make sure we have that full scope and we are not relying on the self-declarations, then we are sure we will be collecting the right amount of taxes.” 

Tax experts said daily payment might require technology to support it at the KRA and the telecom operators.

They further questioned the legality of the daily tax payments, which are part of an aggressive push by the taxman in line with President William Ruto’s directive to “collect every shilling due”.

The government plans to increase tax collection by 17 percent to Sh2.57 trillion in its fiscal year starting in July, the Treasury said.

Taxes remitted by the telcos are 20 percent excise duty on the sale of airtime and data bundles as well as 12 percent duty on money transfer services like globally acclaimed M-Pesa, run by Safaricom.

Mobile network subscribers further pay value-added tax (VAT) on the use of airtime and Internet at the standard rate of 16 percent, making the use of phones a major source of revenue for the government.

Safaricom is the leading mobile operator in Kenya, where most people use M-Pesa and other services to transfer cash, save, borrow and make payments for goods and services.

In addition to going after mobile phone money accounts, the authorities will seek to raise more consumption taxes and ensure that property owners pay their fair share, the Treasury said.

The taxes are remitted by the 20th of the following month under the current legal framework.

“The only way you can pay taxes on a daily basis is if the technology supports it. I presume if there is any sort of interface between the KRA i-Tax system and telcos’ system whereby you are on a daily basis, as a transition occurs, ensuring the tax on it goes to some portal… and at the end of the day, it must be transferred,” Nikhil Hira, a partner at tax advisory firm Kody Africa LLP, said. “The question is do the telcos have the technology which can support this?”

The KRA says its technology, which has already been interlinked with 17 betting firms, eliminates self-declarations by the telcos on the sales of airtime and data and transaction fees on money transfer services.

These transactions will instead be captured by the system in real-time.

Read: KRA to track landlords, spy M-Pesa accounts for extra Sh375bn

The KRA argues the real-time monitoring of transactions on select betting platforms like SportPesa and daily remittance of taxes on a pilot basis have seen receipts from some of the firms rise as much as 50 percent.

The taxman believes the trend will be replicated in mobile network operators.

“First, we are looking at the telcos and transactions they generate and the taxes that we should be collecting from those transactions,” Mr Mburu said.

“We are also going to use that data to now focus on other businesses and individuals that have been making money…[but] have been escaping our dragnet. So we will also be focusing on the till and pay-bill numbers, and every other transaction in the digital space that we ought to be collecting taxes on.”

The chief taxman did not disclose the target month for the planned inter-linkage with telcos. However, he made it clear the real-time monitoring of the transactions and daily remittances will be key in achieving the revenue target of Sh3 trillion to fund Dr Ruto’s first budget for the year ending June 2024, hinting it could start next financial year.

“We are doing everything possible to ensure that we surpass our target by a significant margin to ease the pressure on our borrowing,” Mr Mburu said.

“We are working very hard and we have full government support for that. His [Dr Ruto’s] messaging has been very clear that we must collect every shilling so that we can ease the pressure from debt.”

The purchase and use of mobile phones has become a major driver of government taxes largely given the growing subscriptions to the network, which crossed 65.4 million users last September.

Besides excise and VAT levies on airtime and data bundles, the purchase of the gadgets attracts a 10 percent tax while borrowing on mobile phones comes with a duty at the rate of 20 percent of the fees charged by digital lenders.

→ [email protected]