The taxman may soon start deducting its dues directly from payments made to state suppliers in a bid to increase tax compliance.
To implement this, the Kenya Revenue Authority, which missed its collection target in the last financial year, said it is linking its electronic tax filing system iTax with the Integrated Financial Management Information System – the platform through which the government pays its suppliers.
KRA has a collection target of Sh1.38 trillion this financial year ending June 2017.
The move is largely aimed at maximising collection of withholding VAT and income tax from government’s development budget standing at Sh809 billion this financial year.
Catherine Mbogo, the head of tax at business and consultancy firm Ernst & Young, said the move will make collection of withholding VAT and tax as easy as payroll taxes, helping cut its administrative costs for the KRA.
“They (KRA) are looking for an easy way just like Pay As You Earn where the employer is required to deduct at source, so they there will be no time a taxpayer will forfeit,” Mbogo said by phone yesterday. “The tax revenue authority will have minimal efforts to collect but for taxpayers, you are put at risk because it is like the KRA is getting cash in advance before you even get your dues.”
The agency has been developing Data Warehouse and Business Intelligence system at an estimated cost of Sh765 million to help link taxpayers data in the iTax to other databases.
“The process of doing a linkage between that database and iTax is almost complete. We actually expect to have exchange of information between IFMIS and iTax very soon,” KRA commissioner-general John Njiraini said on July 27. “There will be some taxes that we can recover directly even before the money is paid to somebody because of that linkage like withholding VAT and withholding income tax. That process has started.”
The integration with the IFMIS is part of the taxman’s plan to access taxpayers data through third parties, following an amendment to the KRA Act in the Finance Bill 2016, which is before the National Assembly.
Njiraini says the agency will be requesting for broad databases of sectors or a group of investors and not individuals, a pointer to inadequate capacity to go for individual taxpayers.
Implementation modalities for accessing third-party data from mobile firms, banks and stock market is still under discussion, the chief taxman has said.
“We have to define the information we need, how we need it, how frequent and the manner in which to receive it and our system must also be ready to receive it,” Njiraini said.
Increasing tax compliance levels to more than 75 per cent, Mbogo said, may build a case for lower tax charges in future.
“From the macro perspective, the more they tap into the wider taxpayer community, maybe the better because if the correction is consistent, they look at recommending a lower tax rate in future,” Mbogo said.