TAXATION
Tax Collection Success
By CPA Nicholas Gachara
Successive governments have increasingly had the appetite to spend more in development and recurrent expenditures . Each new government embarks on more projects which require enormous investment resources . The current government headed by President Uhuru Kenyatta , has the Big Four agenda of Food Security , Affordable Housing , Universal Health Care , Manufacturing & Job Creation . This has seen its drive in budgeting along these four pillars .
The success of these government projects depends on the funding which is majorly through tax revenue collection and borrowing with the former taking precedence over the latter . The Kenya Revenue Authority ( KRA ) is tasked to collect this revenue and is usually given a target each successive year to accomplish . In its strategic paper which runs through 2024 , KRA projects collection of Sh1.9 trillion in the current financial year , Sh2.2 trillion in FY 2022 / 23 and Sh2.6 trillion in FY 2023 / 24 .
A great milestone for the Authority is the exceeding of its collection target of 1.669 trillion by 16.8 billion . This is despite the challenging operating economic environment brought about by the Covid-19 pandemic . How has the Revenue Authority managed to get consistent growth of revenues over the past 10 years and target more ambitious revenue collection targets ?
Innovation : The Revenue Authority has adopted innovation to be at its core of collecting revenues . All processes are done online , which is a move away from the manual processes that existed earlier . The manual processes were laborious , inefficient and encouraged tax leakages through tax evasion . One of the most innovative investments is the itax system . The itax system allows you to register for a PIN , file your tax returns , apply for a tax compliance certificate , generate a payment slip , check your ledger account , object to assessments amongst others . It was introduced in 2014 with all tax payers expected to have migrated by January 2015 . KRA is also spearheading the Tax Invoice Management System ( TIMS ) that will replace the current Electronic Tax Register . TIMS will facilitate electronic tax invoice management through standardization , validation , and transmission of invoices to KRA on a real time or near real time basis . This is a promising initiative to nab tax cheats and increase revenues effectively and efficiently .
Competent And Motivated Staff : The Revenue authority plans to nearly double its 7,955 staff over the period to 14,555 to address its capacity issues that have inhibited implementation of tax collection measures . The staff are highly skilled and continually trained to enhance their capacity to collect tax . Further , they are challenged through ambitious collection targets and thus have to go out of their way to target tax cheats . One of the key areas is the targeting of High Net Worth Individuals ( HNWIs ) who are prolific in tax evasion
Education : The revenue authority has embarked on frequent tax payer education series in an effort to simplify tax and enhance wide tax compliance . Tax seminars targeting different business segments and tax heads are done to sensitize tax payers on their rights and obligations . Tax is no longer a foreign concept dreaded by many . Their corporate image has also been enhanced through the tax payers ’ charter which seeks to enhance the relationship between the authority and tax payers .
Robust Laws : To sustain the ambitious revenue collection targets , KRA is supported by laws which are improved annually through budget statements . Some of the laws that KRA bases on are the Tax Procedures Act ( TPA ), Value Added Tax ( VAT ) and the Income Tax Act ( ITA ). It uses these laws to support any action . For instance , the TPA details the various administrative penalties and offences from section 80 to 109 . The commissioner is given various powers in his efforts to raise the revenue as detailed in section 58 to 61 . These include power to inspect goods and records , power to search and seize and notice to appear before the commissioner .
Data Intelligence And Mining : The Revenue Authority embarked on doing relational data analysis to nab tax cheats in its effort to increase tax revenue . A dedicated team of forensic experts collect data and interpret to identify relational trends and point out inconsistencies . The Vat Auto Assessment ( VAA ) is one such outcome . It seeks to match VAT inputs with VAT outputs . Ideally inputs from one tax payer should be the output of another tax payer and where the relationship cannot be identified a red flag is raised for that transaction . The tax payer is expected to either amend his VAT return or give proof of invoice with delivery notes and proof of payments . The team is able to also identified tax payers who have consistently failed to comply and seek to audit the specific tax payer .
Ripe data is also accessed via bank statements . The team is able to point out transactions that have not been declared and the tax leakage caused . Other ways data is accessed is through inter agency data sharing such as through parastatals . One way that is done is coordination with Kenya Power to get data of meter holders to nab landlords who don ’ t declare the monthly rental income .
Conclusion : Our Revenue Authority is investing in ways that yield higher tax collection revenue . Tax evasion schemes are continually being sealed . I would strongly advise that we all pay our equitable tax to avoid penalties and interest but most importantly participate in nation building .
CPA Nicholas Gachara is a Tax and Accounting Consultant . You can commune with him on this or related matters via email at : Nicholasgachara @ gmail . com .
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