KRA: Collecting taxes from 'hustlers' is no mean feat

Kenya Revenue Authority revenue service assistants Kelvin Kelengoi and Samuel Mturi review taxpayer details during a recent field visit. [Jenipher Wachie, Standard]

The government has disclosed its helplessness in collecting taxes from the informal economy, which comprises small traders, small shops, and other businesses that have long evaded the taxman's net. 

The rare but candid admission underlines 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. 

Appearing before the National Assembly Finance Committee, KRA Commissioner General Humphrey Wattanga recently conceded 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 KRA's shocking admission aligns with the documented decline in tax compliance, indicating a potential transition towards an underground economy. 

A spot check by The Standard yesterday 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. 

The taxman also reckons electronic invoicing systems will allow reconciliations that test sales and profits to ensure they are not underreported or unreported altogether. 

KRA stated 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. 

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 newly deployed 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 major blow to the President’s efforts to fund his costly campaign promises and repay mounting public debt at a time when his administration’s additional taxes are stoking tensions amid the high cost of living. 

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

KRA has faced significant pressure from the Ruto administration to address revenue leakage and enhance the financial resources of the State, to allow the Treasury to reduce its dependence on public debt.

This comes at a time when the Kenya Kwanza government has shown a strong interest in implementing new tax increases rattling its support base.  

The Ruto government has implemented a set of contentious taxes, including a 100 per cent increase in value-added tax on fuel to 16 per cent, and the implementation of a 1.5 per cent surcharge to finance the construction of affordable housing.

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