The Kenya Revenue Authority (KRA) has initiated the process of dispatching fiscal demands to businesses, bolstered by enhanced inspection endeavors conducted by recently inaugurated enforcement brigades.
Merely three weeks have elapsed since the KRA initiated the deployment of officers, trained in paramilitary strategies, to Kenyan establishments with the objective of ensuring adherence to tax regulations, as the urgency to achieve a Sh2.7 trillion revenue benchmark by the conclusion of the ongoing fiscal year amplifies.
A fiscal demand can be characterized as a formal requisition for tax payment.
Insiders within the KRA reveal that the new enforcement brigade has disclosed numerous instances of presumed tax dodging, with the anticipation that notifications of tax demands will experience an upward trajectory as investigative visits escalate in intensity. A letter, made visible to Business Daily from the KRA’s Domestic Taxes Department to a taxpayer, mandates an exploration of the premises’ sales and financial statements, retrospectively reaching back five years to 2018. Moreover, demands have been placed to inspect the business permit of the premises, financial and receipt logs, mobile financial transactions encompassing all M-Pesa terminal and payment codes, payroll schedules, leasing agreements, and rental acknowledgments.
The correspondence from the KRA to the impacted taxpayer partially conveys, “Please ensure the documentation is presented within a seven-day window from the receipt of this letter. Non-compliance will result in our office approximating your business income, issuing supplementary assessments, and instigating enforcement actions against you, in accordance with section 29 of the Tax Procedures Act of 2015.”
The officers, designated as revenue service assistants (RSAs), have been engaged in on-site visits to facilitate businesses in establishing an online presence. This auxiliary group includes 1,400 officers who were formally recognized as graduates from the Kenya Defence Forces Recruits Training School in August. Furthermore, RSAs have been entrusted with implementing the Electronic Tax Invoice Management System (eTIMS), designed to optimize VAT revenue accumulation. They are also anticipated to supervise market conditions to identify non-affiliated merchants and sustain ongoing patrols to guarantee consumers receive tax documentation from vendors.
As the KRA persists in pursuing hard-to-tax economic segments, largely composed of small and medium enterprises, it continues its struggle to realize its Sh2.7 trillion tax revenue objective by the upcoming June. RSAs are projected to bridge the disconnect to these elusive-to-tax segments, ensuring equitable tax contributions from them as well.
Treasury documentation highlights that these hard-to-tax segments are distinguished by informality, limited documentation of transactions, taxpayer transaction obscurity, and insufficient oversight. Furthermore, a significant proportion of participants within these sectors harbor the belief that they are not compelled to contribute taxes on self-accrued incomes, culminating in elevated levels of non-adherence. In Kenya, principal sectors included under this classification encompass the informal sector, the agricultural sector, and the digital sector.
The informal sector is pinpointed as a particularly challenging sector to tax due to the invisibility of its transactions to the fiscal authorities. The National Treasury underscores governmental intentions to probe the utility of IT and data sharing with municipal governments, alternate private third-party data sources, and Ministry and State Departments as substitute strategies to incorporate taxpayers from the sector into the tax network.
Additional stratagems underlined include utilizing customs data to track micro and small enterprises engaged in imported goods transactions and, the inauguration of sector/location-based presumptive tax, which accommodates the distinct nature of businesses to propagate equity and fairness. Furthermore, contemplation has been given to modifying the Data Protection Act to exempt KRA from the Act’s stipulations for streamlined access to information.