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Electronic Taxing System Introduced to Kenya’s Revenue Agency to Curb Evasion

The Kenya Revenue Authority (KRA) has announced plans to install Electronic Tax Registers (ERTs) at business establishments in the country. The ETRs will grant KRA real-time access to invoices issued by traders around the country.

By law, businesses with an annual turnover of at least Sh5 million will be required to get this electronic tax register. Traders, manufacturers, and suppliers will also be required to install the new Internet-enabled ETRs which allow the taxman track business conducts using invoices of every transaction and assess the tax due on a real-time basis. The planned deployment has the legal backing of VAT Act 2013, a law which prohibits the use of hard copy cash sale receipts and invoices.

To ensure compliance, the system will require traders to seek permission before performing any business the next day. This means incorrect or incomplete data logged in the previous day could lock them out. More so, control units are required to send end-of-day summary after all the invoices for the respective day have been transmitted and before starting invoice transmission for the next day.

Once the new device is out, however, manufacturers are expected to bear the cost of compliance and procurement. Traders and manufacturers may as well choose to pass it to the customers.

On the aspect of procurement cost, Nikhil Hira, a tax expert and director at law firm Bowman’s Kenya said, “I assume that once the machines have been sourced, taxpayers will be told to purchase and start using them – of course, this means additional cost for taxpayers.”

KRA has consistently missed its targeted annual growth in tax returns for reasons being tax-related misconduct such as theft, cheating in the declaration of return, corruption, collusion and soliciting bribes from tax cheats. The agency, under the newly appointed Commissioner-General James Mburu, is expected by the Treasury to collect Sh1.87 trillion in taxes in the current financial year, up from the Sh1.65 trillion it was expected to rise in the just-ended financial year.

The government of Kenya has over the years tried to restrain tax evasion by implementing different systems ranging from the Integrated Customs Management System (iCMS) to the Simba System and now, the ETR. Recently, seventy-five KRA staffs were arrested and detained in a tax evasion scandal.

In April 2018, KRA got a businessman arrested in a sophisticated tax evasion case ever witnessed in the country. He was charged with counts relating to evading payment of about Sh7 billion in value-added tax (VAT) and income taxes. In November last year, President Uhuru Kenyatta directed the KRA to use the Sh3 billion Huduma Namba (a new National Integrated Identity Management System) biometric data to catch tax cheats.

With this new system coming into play, KRA can monitor businesses incomes and businesspersons will not be able to reduce their tax liability without being noticed. This will allow the government to put taxes generated into public service development.

Improving tax revenue has always been a top issue on the agenda of most African governments. In March 2019, the Nigerian government introduced new taxes in a bid to increase the revenue of the country. Also, the Togo Revenue Authority is the first in the 14-member CFA franc zone to unify national tax and customs services. Since it was created in 2014, Togo Revenue Authority has successfully streamlined both processes and cut staff numbers by 17 percent. Togo saw tax proceeds increase by 23 percent the year after Togo Revenue Authority was created.

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