State confirms data-sharing deal with telcos to up tax compliance

One of Kenya's leading telecommunication companies has already started sharing real-time data on mobile money transactions and other relevant information with the Kenya Revenue Authority (KRA) to enhance tax compliance and bolster revenue collection, the government has confirmed. The State, in its brief to the International Monetary Fund (IMF), said its recently approved data management strategy aims to increase the usage of data and analytics for compliance risk management. "We are making good progress in enhancing the use of data to improve taxpayer compliance. The recently approved data management strategy aims to increase the usage of data and analytics for compliance risk management through integration with key third party sources for revenue assurance and risk management-integration with telecommunication companies has commenced and will be finalised by June 2025," said the State. "As of September 2024, 89 per cent of betting and gaming firms had been onboarded for real-time data acquisition, 60 out of 400 digital credit providers had been onboarded, and the piloting of integration between KRA and one telecommunication's system was completed." It added: "The expansion of scope to the other two telecommunication companies was delayed due to the change in approach to have the integration done through the telecommunications regulator (Communications Authority), which has postponed the achievement of this commitment from July 2024 to June 2025 (implementation of advanced analytics and expert models of fraud detection and risk management." By utilising telecommunication data, the government says it can gain valuable insights into the economic activities of individuals and businesses, enabling it to identify discrepancies between reported income and actual spending patterns. This data-driven approach will allow the tax authority to make more informed decisions and allocate resources effectively. However, the government's initiative has raised concerns about potential privacy implications. Critics argue that the use of telecommunication data could infringe on individual privacy rights. KRA previously assured the public that the data would be used responsibly and ethically, in compliance with relevant laws and regulations. The tax authority had also emphasised that the primary focus will be on targeting high-risk taxpayers and those who are deliberately evading their tax obligations. While the government's move is aimed at increasing tax revenue, there are fears that it could inadvertently push some individuals and businesses towards shadow and mattress banking. Mattress banking describes the practice of individuals or businesses keeping their money in cash, physically stored at home (like under a mattress), rather than depositing it in a bank. This approach is often driven by distrust in banks, concerns about financial stability, or a desire for immediate access to cash. However, mattress banking means forgoing interest earnings and exposing funds to risks like theft or loss. Shadow banking on the other hand refers to non-bank financial intermediaries that provide services similar to traditional banks but operate outside of regulatory oversight. Shadow banking facilitates credit and liquidity in the financial system, but its lack of oversight can also contribute to systemic risks. Financial transactions As the tax authorities become more aggressive in pursuing tax evaders, some Kenyans may opt to conduct financial transactions outside of the formal banking system to avoid scrutiny. This could have significant implications for the economy, as it could reduce tax revenue, hinder economic growth, and increase the risk of financial instability, experts say. To mitigate these risks, experts add that the government must balance effective tax enforcement and protecting individual privacy rights. It is crucial to ensure that the implementation of data-driven tax compliance measures is transparent, accountable, and fair, they say. By building trust with taxpayers and providing clear guidelines, the government can encourage voluntary compliance and minimise the risk of increased shadow banking, experts added yesterday.

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State confirms data-sharing deal with telcos to up tax compliance

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