Kenya can fully fund its annual budget if it manages to collect Sh1.3 trillion in unremitted taxes, mostly from the informal sector.
Speaking in Nairobi on Friday during the launch of NCBA's Economic Forum, President William Ruto's economic advisor, David Ndii, stated that the government is planning to utilize algorithms to improve tax collection in the next two years.
He revealed that the country's high penetration of digital finance, especially digital mobile money transactions, gave the government an advantage in implementing AI-powered tax systems. This will potentially see the government snoop on people's mobile money transactions like M-Pesa and Airtel Money to nab tax evaders.
According to him, most people in the informal sector, including consultants, earn even more than those in formal jobs, yet they don't share the tax burden.
"Look carefully; those in informal jobs are living in the same neighborhood as those with payslips. They take their children to the same schools, drive similar vehicles, and attend the same social events. The only difference is that they file nil returns. Technology is going to help us sort out this anomaly that denies the country close to Sh1.28 trillion every year,'' Ndii said.
"In a year or two, most of our taxes will be collected by algorithms and not by people. We are not planning to collect taxes the old way. We are going to collect taxes by algorithms," Ndii announced.
Ndii explained that traditional methods of collecting small taxes, particularly from the informal sector, had become impossible due to the high administrative burden.
During the forum, the president's advisor also announced that the Kenya Revenue Authority's (KRA) role would soon shift from enforcement to systems management as technology assumes key functions of the agency.
This will see the agency cut its operational costs, considering that it recently announced plans to employ at least 10,000 agents across the country to streamline service delivery.
The agents who work like those employed by telcos will provide basic services that often cost money at cybercafes and at Huduma Centres in various parts of the country.
According to KRA, these agents will assist Kenyans in filing taxes, registering as taxpayers and even making payments to the Authority.
The revenue agency has, in the past two years, deployed various innovations geared towards simplifying the tax regime to ease compliance and service delivery, application of cutting-edge technology in revenue mobilization, forming strategic partnerships to bolster compliance, and facilitating and motivating staff for enhanced productivity by emphasizing ethical conduct and professionalism by all staff.
Early this year, it established a new department named the Micro & Small Taxpayers (MST) Department to mainly focus on medium and small businesses across the country.
This department, which is headed by Commissioner George Obell, plays a pivotal role in simplifying tax compliance, fostering trust, and promoting economic growth by offering tailored tax solutions that address the unique challenges MSMEs face in their business operations.
Even so, it is still missing in its collection. The National Treasury’s draft 2025 Budget Review and Outlook Paper (BROP) indicates that KRA collected Sh1.093 trillion in income tax against a target of Sh1.125 trillion for the fiscal year ending June. The agency is expected to collect close to Sh2.8 trillion this financial year.
Besides strengthening revenue collection, Ndii also announced the government's intention to restructure how Value Added Tax is distributed.
He noted that the current VAT system only favoured manufacturers. However, the government is in the process of changing the structure to favour consumers directly.
"So you are giving the benefit to a manufacturer with a view that they will pass it to the consumer. In so doing, you create a VAT refund, which is very problematic," he noted.
"Technology will now allow us to give VAT refunds to consumers directly. For us to give you a tax credit, you must first be a taxpayer," Ndii added.
