Since stepping up compliance checks in key towns last month, the Kenya Revenue Authority (KRA) has noticed an increase in the number of company owners who are abandoning mobile merchant payment accounts and switching back to cash transactions.
The taxman claimed to have noticed a pattern whereby companies that previously accepted payments using Lipa Na M-Pesa Buy Goods Till numbers are now requesting payment in cash from their clients.
This comes after the KRA sent out 1,400 revenue service assistants with paramilitary training a month earlier to aid in improving tax compliance among business owners, including the convenience of online business registration.
“It has previously been mentioned that the market is experiencing [the closure of Lipa Na M-Pesa merchant accounts]. Caroline Rotich, the KRA’s chief manager in charge of the Domestic Taxes Department, stated on Tuesday that she and her team are developing plans for how to get around this.
To capture tax fraudsters, the KRA declared that it will ask Safaricom for information about retailers that have chosen not to use the Pochi La Biashara and M-Pesa Buy Goods tills.
Lipa Na M-Pesa Buy Goods by Safaricom Since they may use the same cash to pay costs like employee wages and commissions, tills have become very popular among small business owners in recent years.
The registration process for informal business owners including food sellers, kiosk proprietors, boda boda drivers, and second-hand clothing merchants is specifically designed for Pochi La Biashara. They can “receive and separate business funds from personal funds on their M-Pesa number” as a result of this.
We will gather information on these drop-outs by collaborating with Safaricom to promote integration, according to Ms. Rotich, so that we may then follow up and do compliance checks.
“We now have several police conducting compliance inspections in and around the major towns. This will assist us in resolving the problem.
Starting in July, small businesses with gross yearly sales between Sh1 million and Sh25 million are required to pay turnover tax at a rate of 3% of those sales. This is an increase from the previous mandate, which called for 1% of total sales between Sh1 million and Sh50 million to be levied.
The KRA is using more third-party data to help it reach its goal of increasing exchequer revenue from around Sh2.17 trillion in the previous fiscal year to about Sh2.5 trillion for the current fiscal year ending in June 2024.
The Tax Procedures Act enables the government to track the activities of taxpayers by connecting its i-Tax system with external entities like banks and mobile payment systems like M-Pesa.
Business organizations like the Kenya Association of Manufacturers and the Kenya National Chamber of Commerce and Industry have recently criticized the taxman for unfairly burdening a small number of people in the formal sector with taxes while the vast majority of the population remains exempt.
In his effort to “collect every shilling due,” President William Ruto has ordered the taxman to be nicer and more effective in increasing compliance levels in an economy dominated by the informal sector.
After assuming office in September of last year, Dr. Ruto declared that “a major barrier to the realization of our national revenue target is that in practice tax administration has traditionally been a repressive, menacing affair which resembles extortion.”
This kills the desire to pay taxes and lessens the likelihood of a larger tax base, causing Kenya to fall short of its potential for national revenue and depriving its people of essential services and development initiatives.
The taxman is relying on the revenue service assistants to help increase compliance levels among informal market traders after several attempts to bring them into the tax net failed to provide the desired results.
Following the implementation of the Electronic Tax Invoice Management System (eTIMS), the revenue assistants, stationed in major towns, are tasked with gathering information on taxpayers through market surveillance to spot unregistered vendors and ongoing patrols to make sure customers are given tax receipts.
The officers, according to businesspeople who have come into contact with them, are requesting to examine the business permit for the premises, cash and receipt books, mobile money statements, including all M-Pesa till and pay bill numbers, wage schedules, tenancy agreements, and rent receipts.
In a message to taxpayers dated September 18, 2023, the taxman revealed the placement of the new tax enforcers. “Feel free to approach them, say hello, and let them know how they can assist you,” the notice to taxpayers said.
The KRA has targeted the economically difficult to tax sectors, which are mainly small traders working in unregulated environments.
The Treasury stated in its proposed medium-term revenue plan that “the hard-to-tax sectors are characterized by informality, limited record-keeping, lack of visibility of taxpayers’ transactions in this sector, and inadequate regulation.”
