electronic tax register

ICT technician Tony Mutune explains how a new model of electronic tax register (ETR) for automatic transmission of tax data works.

| File | Nation Media Group

Taxpayers on edge as KRA moves to stem cheating

Anxiety is spreading across Kenya’s business community as the Kenya Revenue Authority (KRA) rolled out a series of new tax surveillance systems that will hand the State real-time access to financial data, including sales returns, for scrutiny.

To tighten supervision, the taxman announced the installation of flow meters and CCTV cameras in alcohol factories – guaranteeing the State round-the-clock information on the operations of manufacturers to curb tax evasion.

KRA also announced all electronic tax registers (ETRs) are required to be connected to its systems for monitoring daily sales.

The two systems will give KRA a view of goods as they leave the production line to the point of exchange between retailers and consumers, collecting what is due at each point along the supply chain.

The taxman is sealing loopholes that allow traders and manufacturers to under-declare the amount of goods sold or produced to minimise the taxes they owe.

“This year we, have come with a very aggressive way of ensuring all manufacturers of alcohol are fitted with three key gadgets including a mass custody flow meter, a radar to monitor what is entering into their tanks, and CCTV cameras. All these gadgets will be integrated and ensure they can relay data remotely,’’ said Isaac Gachoka, KRA domestic tax enforcement official.

Taxes have declined

Kenya’s economy has grown on average 4.7 per cent over the last five years but taxes as a percentage of GDP have declined from 17.4 in 2018 to 16.6 percent in 2019.

This indicates that while the amount of goods and services is expanding, the taxes on them are going down, indicating gaps in the economy exploited by tax cheats through mis-invoicing.

The taxman has deployed IT systems on the supply side with the rollout of the Excisable Goods Management System (EGMS) in 2013 that facilitates the tracking of stamps on excisable goods along the supply chain to account for tax payments.

The digital stamps were meant to replace paper stamps but are also prone to counterfeiting.

Now KRA is expanding its surveillance through the mass custody flow meter that will track high volumes of alcoholic beverages produced to maximise the excise tax collected.

CCTV cameras will also allow the taxman to track what the firms are producing, by relaying data in real time.

The technology is expected to complement the existing EGMS.

At the retail end, the taxman announced the end of the January 15, 2022 deadline for firms to comply with a new law that requires them to send real-time data on their daily sales through internet-enabled electronic tax registers.

Phased-out gadgets

KRA then said it would crack down on dealers supplying the phased-out gadgets.

To beat tax cheats, KRA “wishes to remind suppliers of Electronic Tax Registers (ETRs) and VAT registered taxpayers that the supply of ETRs that are not compliant with the Value Added Tax (Electronic Tax Invoice) Regulations, 2020 was discontinued effective January 15, 2022, as per the Public Notice of November 23, 2021, on the ‘Requirements for Uptake of Electronic Tax Invoice’,” it said.

“Any supplier of ETRs found supplying non-compliant ETRs shall be liable to penalties as prescribed in the law.”

The law requires businesses with an annual turnover of at least Sh5 million to have ETRs. Under the new system, the KRA will receive sales and invoice data from all registered firms and traders daily in a fresh push to boost revenues and curb tax evasion.

Traders will also be required to seek the taxman’s permission to perform any other business the next day under the system, meaning incorrect or incomplete data logged the previous day could lock them out.

Fine for non-compliance

Failure to comply with the regulations attracts a fine not exceeding Sh1 million or imprisonment for a term not exceeding three years or both.

The internet-enabled ETRs come with several unique features. For example, they capture the personal identification number (PIN) of the gadget’s buyer. But that is optional when generating an invoice and is only applicable when the purchaser intends to claim input tax for the VAT paid.

The new ETRs also have a control unit serial number issued by KRA to identify each tax register beside a control unit invoice number, that is, a unique number generated by the tax register upon the issuing of each tax invoice.

The gadgets also come with a quick response (QR) code, which helps to confirm the validity of the tax invoice.