After avocado, KRA now trains its guns on sugarcane farmers

Cane cutters harvest West Kenya sugar factory contracted sugarcane at Vuyika in Malava Sub-county in Kakamega county on July 12, 2021. [Benjamin Sakwa, Standard]

The taxman now wants sugarcane farmers to enlist on its controversial tax information management system, e-Tims, or else they will not be able to sell their produce.

Sugar millers have started tightening the noose on farmers to enlist in the system.

Butali Sugar, a western Kenya-based factory, for instance recently asked farmers to comply.

“To all our respected farmers…with effect from April 1, 2024, each farmer is required to issue an e-TIMS invoice for every cane delivery made to the factory,” said Butali in a circular seen by Sunday Standard.

“We will be unable to process and pay you for cane delivered unless you as our farmers provide us with a valid electronic tax invoice.”

The company said it had held a series of meetings with Kenya Revenue Authority (KRA) to resolve the issue in a more simplified way “but to date an amicable solution has not been found we continue to have discussions with them and hopefully we agree on a simplified way to resolve this in the coming weeks.”

KRA has been expanding its controversial dragnet to more informal groups including farmers. They include milk, tea and avocado farmers. 

Avocado farmers, particularly in Central Kenya, have recently raised cry over the taxes imposed on the fruit, with Deputy President Rigathi Gachagua forced to convene a meeting to address the issue.

In the meeting held mid-March where the DP met over 100 stakeholders in the avocado value chain including farmers, aggregators and exporters, the farmers said the requirement to register on e-Tims had adversely affected the sub sector forcing exporters to relocate to Tanzania where they said has an enabling environment for farmers and the exporters.

“Farmers are not familiar with the electronic invoicing systems and are also required to have KRA pins and smartphones of which most do not have,” said Avocado Farmers Association chairperson Munyui Wa Njohi.

Gachagua promised that a taskforce would be set up to address other hiccups that were espoused during the consultative forum.

The farmers said the law would discourage many from venturing into the avocado farming.

Additional revenue

The move on farmers comes at a time when the Kenya Kwanza government has shown a strong interest in implementing new tax increases, rattling its support base.

The taxman has faced significant pressure from the Ruto administration to address revenue leakage and enhance the State’s financial resources to allow the Treasury to reduce its dependence on public debt.

The government has implemented a set of contentious taxes, including doubling value-added tax on fuel to 16 per cent, and a 1.5 per cent surcharge to finance the construction of affordable housing. 

The additional taxes are stoking tensions amid the high cost of living.

The government anticipates that these measures will generate an additional Sh200 billion annually.

KRA has stepped up the implementation of the system at a time when its plans to expand the tax bracket to the informal sector have come under scrutiny. 

Appearing before the National Assembly’s Finance Committee earlier this year, KRA Commissioner General Humphrey Wattanga admitted the difficulties in bringing the informal economy into the tax net.

He cited the obscure nature of businesses in this sector and the absence of transparency in their financial transactions as major obstacles.

“Taxing the informal sector firms remains a challenge mainly due to the high administrative costs incurred by tax authorities, lack of financial statements by the enterprises and a large number of unregistered enterprises,” said Mr Wattanga in his presentation to the watchdog committee. 

The rare but candid admission underlined the revenue-raising challenges facing the cash-strapped Kenya Kwanza government, which is relying on a series of fresh levies and revenue modifications aimed at the sector in a bid to increase its tax earnings twofold.

KRA’s shocking admission aligned with the documented decline in tax compliance, indicating a potential transition towards an underground economy. 

A spot check by The Standard earlier revealed that some traders have resorted to abandoning electronic payment methods to avoid increased tax compliance. 

KRA relies on the monitoring of transactions conducted through electronic or formal payments to regularly and automatically obtain information regarding taxpayers’ financial transactions with banks and other institutions. 

The taxman reckons this data can be analysed through algorithms to generate taxpayer risk profiles and improve compliance. 

KRA also reckons electronic invoicing systems will allow reconciliations that test sales and profits to ensure they are not under-reported or unreported. 

It said that despite the current situation, there is still hope for combating tax evasion through collaboration with county governments in sharing information on tax evaders among businesses. 

Integrate systems

KRA intends to integrate its systems with telcos, commercial banks, and the Central Bank of Kenya (CBK) to gain a comprehensive perspective on all traders’ transactions. 

It also says its new Revenue Service Assistants will aid in enforcing compliance by conducting field operations and gathering data to assist in expanding the tax base. 

The controversial revenue plan proposed by President William Ruto has not yet gained traction as tax collection in both the previous and current fiscal years has fallen short of the target by billions of shillings. 

This deals a blow to the President’s efforts to fund his promises to the electorate and repay mounting public debt.

The platform on which his government was elected aimed at uplifting low-income earners, commonly referred to as hustlers.