Why experts want KRA to register taxpayers at birth

Times Tower in Nairobi, the Kenya Revenue Authority headquarters. FILE PHOTO | DENNIS ONSONGO | NMG

Tax experts have recommended a single lifetime identifier for all potential taxpayers to help the Kenya Revenue Authority(KRA) maximise its collection potential.

The tax specialists drawn from key agencies including, the Institute of Certified Public Accountants of Kenya (ICPAK), the Institute of Economic Affairs (IEA), and consultancy firm, Deloitte East Africa told Parliament that the Kenya Revenue Authority (KRA) is presently unable to track and register potential taxpayers due to lack of an integrated system.

“The absence of a system to identify taxpayers has resulted in the exclusion of a large proportion of potential taxpayers from the tax net. The Kenya Revenue Authority is therefore unable to track and register these persons,” ICPAK chairman, Philip Kaikai said when he appeared before the Finance Committee of the National Assembly with comments on the proposed National Tax Policy(NTP).

The experts also proposed the need for the introduction of a personal identification number (PIN) categorisation for employees, students, and businesses to prevent dormant PINs.

This, they said, will allow sole proprietor businesses and partnerships to have PINs separate from individual or personal PINs. The NTP seeks to address the unpredictability of tax rates and recommends a comprehensive review of tax laws to be done every five years.

The policy further recommends the development of a framework for the identification of tax incentives and to address challenges relating to international taxation and treaties.

The Treasury document seeks to fix the challenges of a growing tax expenditure estimated at 2.61 percent of the gross domestic product (GDP) as of 2021, complexities in taxation of emerging economies such as online business, low tax compliance, and delay in settlement of tax disputes.

Mr Kaikai said the proposed NTP has loopholes that only meant a few Kenyans already in the tax bracket carried the weight.

“The proposal on tax administration is not exhaustive of issues affecting tax administration. There is limited access to taxpayer transactional information,” Mr Kaikai said.

“Kenya currently operates a self-assessment. This implies that KRA relies on the taxpayer's honesty and accuracy in declaring income.”

ICPAK is proposing the use of technology and data management to identify and register all potential taxpayers. “To broaden the tax base and enhance compliance in Kenya’s tax system, the policy should require every legal person to be issued with a PIN to keep proper books of accounts for tax determination and those with an annual turnover of Sh5 million to be subject to audit and representation by a tax agent,” ICPAK said.

“There is a need to use customs data to trace medium and small enterprises (MSMEs) who deal with merchandise.”

The institute also wants the KRA to enhance the use of third-party information from banks, telcos, and utility firms to identify transactions in the digital sector.

“There is a need to adopt a single mechanism that will help KRA to collate and collaborate existing data sets of taxpayers and citizen information as well as enhance information sharing inter and intra country,” Mr Kaikai said.

Deloitte proposed the need for a framework that compels KRA to formulate and publish a tax audit process guideline aimed at ensuring the conduct of tax audits is efficient, effective, and predictable with clearly stipulated framework, standards, methods, and processes including sampling.