Taxman to compel third parties to hand over information on tax cheats

Kenyans que to beat the KRA tax returns deadline at the Kenya railways club.30/6/2016 PHOTO BY GEORGE NJUNGE

Anyone you trade with could now be compelled to reveal your tax obligations in new spying measures to catch tax cheats.

Kenya Revenue Authority (KRA) says the new Finance Bill gives it powers to ask third parties including regulators to hand over relevant information in the ‘form and manner prescribed by the commissioner’ to help it asses one’s tax liabilities.

The tax measures, whose effective date was July 1, aim at catching the nil filers or those who under declare their taxes. “If you are a nil filer yet we find that you have done business with the county government for example, we will automatically make the adjustments in our records,” KRA Deputy Commissioner James Ojee told journalists at a briefing.

If implemented, it would turn nearly every trader into a ‘spy’ coming at a time when there is furore over its demand to start snooping into mobile money records. They will also support efforts by the taxman to go after the informal industry, the bulk of which has beaten all previous attempts to be recruited as taxpayers.

Tax burden

Mr Ojee, who was speaking at a function to break down what the new tax measures mean for the country, says in case one will not have been registered as a taxpayer, they will also be automatically recruited. Regulators of different sectors including banking, insurance among others will also be compelled to hand over any information on their members under the same ‘third party’ clause.

“The rationale behind these measures is the expansion of taxpayer base, facilitating tax compliance management and reduction of tax burden to the compliant few,” he said. He said the new law will not just target banks and mobile money transfer services but all third parties in a bid to go after tax evaders.

“KRA has powers to call for records as well as return powers to request taxpayers’ information in such form and manner prescribed by the commissioner. The amendment gives the commission powers to ask third parties such as regulators to provide us with information on one of their players,” said Ojee said.

“For example, if a player is in the insurance sector, we could ask the IRA (Insurance Regulatory Authority) for information. This is done in good faith and the main reason is to expand the taxpayer base as well as reduce the tax burden on the compliant few.”

Mr Ojee, however, explained that KRA is not targeting any specific industry in particular but will be used in cases where it is not satisfied that the data provided by the taxpayer is sufficient. KRA has been under increasing pressure to grow tax collections at a faster rate than the economy is growing.

In the current budget, KRA is expected to collect Sh1.4 trillion, at least Sh300 billion more than last year’s target. This has seen it train its guns on the informal sector, which has remained largely untaxed. This saw Treasury ask the taxman to enforce the turnover tax which will see traders pay Sh3 for every Sh100 they make irrespective of whether they have made a profit or not.

Traders in the informal sector will pay 3 per cent of their total income as taxes. “If for example a trader from the informal sector supplies 200 bags of maize to the National Cereals and Produce Board, we will assume that he will be making a profit. Under the presumptive taxes, we will ask the trader to pay the turnover tax,” Mr Ojee said.

One of the main areas where small traders transact is via mobile money, making it the easiest target for the taxman to gather intelligence. But it is set to find itself in a legal nightmare after the telecoms regulator came to the defense of mobile money customers saying that the current law does not support the claim by KRA to snoop into their transactions.

Legal challenges

The Communications Authority of Kenya on Wednesday said that unless the laws on confidentiality are changed, mobile money transactions remain a top secret between a subscriber and a telecoms operator.

The taxman has been looking for new ways of getting to the wallets of the informal sector and it had identified the mobile money industry as one of the potential avenues to get to tax cheats. The uptake of mobile money services in the country has picked up, with subscribers transacting close to Sh840.3 billion in the first three months of the year.

Of this, money transacted through Safaricom’s mobile transfer service, M-Pesa, was valued at Sh764.7 billion, or about 90 per cent of the total cash transacted. “If we have any legal challenges, then they will be addressed,” Mr Ojee said.