How KRA will update your tax file in zero time as you transact business

Clients filing tax returns at Kenya Revenue Authority offices in Nyeri on June 29, 2019. [Kibata Kihu, Standard]

The taxman will now be able to collect transactional data from all traders, individuals and companies in the country in near real-time, tightening the noose on tax cheats.

Armed with new electronic-invoicing and reporting tools, Kenya Revenue Authority (KRA) will be able to collect information without waiting for taxpayers to file, even at the point of a commercial transaction to make its own assessment of the tax due.

This is part of President William Ruto's new grand plan to broaden the country's tax base and raise revenue to enable him deliver on his raft of rosy pledges over the next financial year.

The plan will see KRA move to seal revenue leaks and boost State coffers to enable Treasury to wean itself off reliance on public debt.

The President on Wednesday night for the first time alluded to the new radical shift during a joint media interview with journalists from State House, Nairobi.

He revealed that the government is on the homestretch of unveiling a new tax system to ensure KRA collects most of the taxes due to government.

"We are installing a new tax system, which is going to drive the collection of value-added tax to between 90 and 97 per cent," said Ruto.

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"Every government service where tax is payable is going to be collectable online. I will not wait for anybody to file a return at the end of the month. We will be paying taxes as we spend our money or as we do our businesses."

KRA has been rolling out new internet-enabled electronic tax registers (ETRs) for all businesses with an annual turnover of at least Sh5 million.

The ETRs are expected to relay real-time data on daily sales to the taxman.

Under the new system, KRA will receive sales and invoice data from all registered firms and traders daily in a fresh push to boost revenue collections and curb tax evasion.

The new technology will deepen the scrutiny of traders' transactions.

Traders will also be required to seek the taxman's permission to perform any other business the next day under the system, meaning incorrect or incomplete data logged the previous day could lock them out. Ruto has given KRA a target of Sh3 trillion by the end of the next financial year and to double it by the end of his first term in 2027, noting that tax collection is currently below par.

KRA, which has in recent years stepped up adoption of technology to snoop on tax evaders, will under the new spying plan on business transactions embrace new advanced analytics and artificial intelligence (AI) applications to scrutinise enterprises, automatically spotting red flags and building evidence that can be used to levy higher assessments.

The move will introduce real-time transaction-level reporting of tax information directly to KRA. Under the mandate, anyone doing business in Kenya will need to provide real-time electronic filing of all invoices and transaction data on a sale, for instance, and tax reporting will be embedded into a traders' transaction workflow.

"Beginning with William Ruto, everybody must pay tax. This is not the animal farm where some are more equal than others," Ruto said as he hinted there will be no sacred cows in the payment of tax.

The new administration has accused powerful officials and wealthy individuals and business families of reneging on their tax obligations due to their rich status.

Ruto plans to spend Sh3.64 trillion in the next financial year - the country's biggest budget so far.

The president's first budget to draw up and implement since taking office on September 13, 2022 is 10 per cent higher than the Sh3.3 trillion budget for the current financial year to June 2023, crafted in the last day's of the Jubilee administration and being implemented by Ruto's government.

The tax plan reflects the populist approach Ruto has taken to budgeting - spend big and bank on those investments to pay off in a stronger economy, higher wages and reduced poverty.

The National Treasury, in the Budget Review and Outlook Paper (Brop) for the next financial year, said recently the country's budget is expected to reach Sh3.64 trillion in the 2023-24. This will be split into recurrent spending of Sh2.42 trillion, or 66 per cent of the budget, and Sh796.4 billion for development expenditure.

Treasury says in the document, which sets pace for the formulation of the next budget, that the government will increase tax revenues as a percentage of the gross domestic product (GDP) from 17.3 per cent over the current financial year to 17.8 per cent in 2023-24.

Ruto will be banking on increased tax collections by KRA to reduce the need for borrowing and bridge the budget deficit that it estimates will be at Sh695.2 billion during the year.

KRA is expected to collect Sh2.57 trillion in 2023-24 financial year, which is 17 per cent more than the Sh2.19 trillion it is projected to collect over the current financial year to June 2023.