KRA to access M-Pesa, bank accounts as Treasury raid hustlers

It will require amending the law to access new sources of revenue heretofore hidden and undeclared, as the cash-needy government seeks more money and foregoes offered syndicated loans. 

The details emerged as President William Ruto’s administration moves to implement new tax measures that critics say will hit the poor and the middle class the hardest.

In the Finance Bill, 2024, the National Treasury wants the Kenya Revenue Authority exempted from the law prohibiting it from accessing taxpayers’ private data.

“The processing of personal data is exempt from the provisions of this Act if disclosure is necessary for the assessment, enforcement or collection of any tax or duty under a written tax law,” the Bill reads.

This means KRA will have powers to compel banks and telcos to produce statements of customers’ financial dealings.

As a result, the taxman could slap you with a tax demand if your financial transactions surpass tax declarations.

Presently, the law bars unfettered access to data unless it relates to data by an individual undertaking a personal activity, national security or public interest.

Exemptions also apply when disclosure is required by law, usually by service of a court order.

If approved, the taxman would have access to all income a person earns beyond their salaries which attracts Pay-as-You-Earn (PAYE).

This means KRA would have powers to monitor transactions on Paybills, bank accounts and applications that businesses and individuals use to receive cash.

Judges have often dismissed evidence from private individuals’ data obtained illegally, to the frustration of many investigators.

The government says it targets to collect over Sh350 billion more in tax revenues this financial year to reduce the deficit in its Sh3 trillion budget.

To shore up the gains, traders would be compelled to disclose their sales to the taxman who would now compel them to integrate the electronic tax system (e-Tims).

Those who fail to submit electronic documents including detailed transactional data face a fine of Sh2 million every month that the failure persists.

“A person who fails to comply with the notice commits an offence and shall be liable on conviction to a penalty not exceeding Sh2 million for every month or part of the month that the failure continues,” the bill reads.

Besides the new powers to KRA, a cursory look at the proposed tax law reveals that the Treasury is keen on raiding the middle class in a big way.

Companies supplying goods to government agencies would be required to pay tax. Only services attract withholding tax at this time.

The cost of data bundles is also set to go up if the bill sponsored by Molo MP Kuria Kimani, chairman of the National Assembly Finance Committee, is approved.

The taxman seeks to collect excise on telephone and internet data services at 20 per cent from the current 15 per cent.

The cost of data has a direct impact on Kenya Kwanza’s digital economy plan.

Excise on money transfer services by financial service providers, banks, and money transfer agencies has also increased to 20 per cent.

Fees charged for money transfers—like M-Pesa, Airtel Money, and so on —would attract an excise duty of 20 per cent.

President Ruto, whose administration is considering tougher betting laws, has slapped gamblers with an excise duty of 20.0 per cent.

Banking services will cease being VAT-exempt in the proposed tax dispensation, which is likely to push up bank charges.

Apart from the VAT charge, bank transactions and services would also be subject to excise duty.

The bill further provides that loans will attract VAT before they are funded so would be the processing of cheques and acquisition of acquires credit and debit cards.

Kenya Kwanza is further seeking to impose taxes on foreign exchange transactions.

Forex bureaus would thus retain some amounts of the exchange value to meet the tax obligation.

In a spiral effect on the prices of some classes of goods, the government has proposed an eco-levy on a range of products.

Many electronic goods like smartphones, television sets, audio equipment, and display screens are set to cost more.

Dealers would be required to pay from Sh98 to Sh1,275 per unit for the class of products in the category.

The Finance Bill, 2024, further seeks to increase the import declaration fee to 3 per cent, setting the stage for a hike in the prices of imported goods.

Kenya is largely an import economy, meaning the increment would affect the prices of many goods.

While Treasury appears to have gone slow on taxing most household goods, bread has not been spared.

The products are being moved from zero-rated, meaning manufacturers cannot claim a refund for inputs, and definitely will pass the cost to customers.

In a recent televised interview, Treasury CS Njuguna Ndung'u said they had discovered that the exemptions do not benefit the poor, as believed.

"VAT accounts for 40 per cent of the tax revenue. More than half of this is paid back in refunds to manufacturers. We recently did a study and re

Hotel investors are also set to pay more after exemptions were removed for goods used in the construction of tourism facilities and recreational parks.

Locally assembled vehicles for transportation of tourists would no longer exempt from VAT, nor would  equipment for recycling plastics, and musical instruments used by education institutions.

The Bill is further removing affordable housing relief, which was capped at Sh9,000 per month.

Digital firms trading in Kenya are also set to pay a significant economic presence tax, which is replacing the digital services tax.

The digital services tax is presently paid at 1.5 per cent but the proposed economic presence tax could leap towards 6 per cent.

Kenya Kwanza is also proposing a motor vehicle tax at 2.5 per cent of the value of the car up to a maximum of Sh100,000.

“The value of a motor vehicle shall be determined based on the make, model, engine capacity in cubic centimetres and year of manufacture of the motor vehicle,” the Bill reads.

Insurance companies are set to take the heat as failure to collect the tax would attract a fine of the uncollected tax plus 50 per cent of the same.

“An insurer of motor vehicles shall collect and remit motor vehicle tax within five working days after issuing a motor vehicle insurance cover.”

Only ambulances, national and county government vehicles, KDF, NPS, NIS and exempted persons will not pay the tax.

Presently, Kenyans pay a Road Maintenance Levy at rates determined by fuel price caps set by the Energy regulator monthly.

Among the gains of the proposed law is that the computation of the tax period will exclude weekends and public holidays.

The monthly amount of allowable pension deduction has also been increased to Sh30,000 – albeit a flat rate and a shift from the current Sh20,000 or 30 per cent.

Going forward, tax refunds would be settled within six months as only income tax refunds would be processed within five years.

The threshold for VAT has also been increased to Sh8 million, which could give relief to many start-ups. It is currently at Sh5 million.

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