What you need to know:
- The Digital Service Tax is part of our efforts to broaden the tax base and will be implemented from January, 1 2021.
- KRA is mandated to collect taxes and duties due for the government. In so doing, KRA develops various strategies to ensure that compliance in tax laws is enhanced.
This week, Mr Githii Mburu, the Commissioner-General, Kenya Revenue Authority, responds to your questions.
In an effort to generate revenue, Kenya has introduced measures to tax the digital economy. What measures have you put in place to ensure that while taxing the stakeholders, you do not hamper small and emerging entrants, especially the youth?
Raphael Obonyo, Nairobi.
The Digital Service Tax (DST) is part of our efforts to broaden the tax base and will be implemented from January, 1 2021. It will not hamper the operations of start-ups or small and medium enterprises since the rate of the tax is minimal, at 1.5 per cent. Furthermore, for persons who are residents, the tax will be an advance tax, which will be offset against their final tax.
We have also been engaging various segments of stakeholders, including the Youth Wing of the Kenya National Chambers of Commerce and Industry, on the taxation of the digital economy. The feedback from the stakeholders has been incorporated in the draft regulations. At the back end, we have enhanced the domestic taxes system (iTax) to ensure the smooth implementation of DST.
We were told of your great work ethic that saw you work behind the scenes at the Times Tower for a number of years. How did you develop such high standards?
Githuku Mungai, Nairobi.
Perhaps my commitment to a higher calling and deep sense of public duty keeps me focused on what I need to do to progress both. I have to keep on reminding myself that I can do something that promotes the good of all as opposed to self.
I have to ensure that I free myself from the influence of hatred, friendship, anger and pity so that I can continually judge the truth. These are words that were spoken by Julius Caesar and remain relevant in this day and age.
Working for a government whose thirst for spending money is unmatched. How do you intend to bridge the tax collection gap occasioned by the Covid-19 pandemic?
Carey Yiembe, Mombasa.
The Covid-19 shock has a definite negative impact on economic performance as well as revenue collection. The Government has projected a 2.5 per cent economic growth rate for the year 2020, a revision from the 5.7 per cent growth rate projected in the pre-Covid-19 period.
However, amidst the pandemic, KRA will continue to play its key role in facilitating taxpayers, and to collect revenue to drive the government development agenda. The Authority is intensively promoting the use of Alternative Dispute Resolution to resolve tax disputes as opposed to protracted and costly court processes.
The National Treasury and Planning is also reviewing the operations of the Tax Appeal Tribunal to promote expedited determination of disputes. We are facilitating taxpayers who can demonstrate cash flow challenges with favourable payment plans. The desired solution to the current challenges will be the recovery of the economy.
We shall, however, continue to pursue measures such as intelligence and data driven compliance management approaches, tax base expansion and combating of tax evasion to enhance recovery of taxes even under the challenging operating environment.
Why does KRA frustrate the registration of persons living with disability for a tax exemption certificate even after having met all conditions?
Jason Muruthi, Kiambu.
KRA treats persons with disabilities with utmost compassion and respect, and in this regard has established a unit dedicated to handling exemption requests for persons with disabilities.
The vetting panel comprises membership from the Ministry of Health, The National Council for Persons with Disabilities (NCPWD), and KRA. Disability, whether physical, mental, psychological or however described, is a medical phenomenon.
The Commissioner-General refers to recommendations from the Ministry of Health in handling such requests. It should be noted that prudence is of high importance to avoid instances of disingenuous persons avoiding to pay taxes.
The vetting panel serves to ensure that only cases which are genuine are considered for approval. Persons with disabilities wishing to be considered for tax exemption lodge their applications and supporting documents with the Council, which is the Secretariat for this process.
Upon receipt of the application, the NCPWD arranges for vetting either through the desk (where the nature of disability is obvious and the applicant is not required to appear in person), or physically where the applicant is required to present him/herself before the vetting panel.
The request is either recommended or not recommended. Recommended or successful cases are uploaded by the NCPWD to KRA iTax system and approved upon verification of the documents and tax payment status.
Issues related to the documents or tax payment have to be cleared with NCPWD and the individual applicant respectively before an approval is granted Not recommended or unsuccessful cases are notified to the respective applicants, who, if not satisfied with the verdict, may appeal to the Cabinet Secretary in charge of National Treasury. Please contact the relevant office on telephone 0709012665/63 for a status check of your application, or email email@example.com.
Your coming into the Kenya Revenue Authority can hardly be said to have been a smooth one as the organisation faced the challenge of not effectively meeting its targets and now the negative aspect of the coronavirus pandemic. How would you describe the current performances of KRA under your leadership?
Francis Njuguna, Kiambu
My leadership is anchored on the Integrity, Service and Performance culture, otherwise known as (ISP). On Integrity, staff are expected to do the right thing at the right time. I believe that if KRA staff lead the way in upholding integrity in our public and personal lives, Kenya will be transformed.
On Service, service delivery is key in ensuring tax compliance. Employees are expected to offer professional and efficient services to Kenyans at all times, while, on Performance, staff are expected to scale up their performance.
This should be done with a focus on the Authority’s corporate goal to ensure that we meet our mandate of collecting revenue to sustain the economy of the country.
There can be no denying that our delivery capacity against earlier set targets continues to face external and unforeseen challenges. For example, in the last financial year, our performance was affected by decelerated economic growth; compounded by the coronavirus pandemic on the financial year homestretch.
However, KRA has continued to perform reasonably well and has developed a variety of strategies to ensure good performance and mitigate risks.
For example, as part of tax base expansion initiatives, KRA recruited an additional 1.58 million individual taxpayers and 90,862 companies with more than 4.4 million taxpayers filling their returns in the last Financial Year.
Many Kenyans working in different institutions, including government ones, have raised concerns that, whereas they are deducted PAYE on payments made to them, the same is never reflected when they file their annual returns yet for individuals who remit withholding tax, this is always reflected. Where does this money go? Are your employees compromised to look the other way when they are carrying out their compliance inspections? How can such institutions be reported for the necessary action?
Komen Moris, Uasin-Gishu.
Employment income earned in Kenya is subject to tax and it is the responsibility of the paying institution to compute taxes payable, in line with the PAYE guidelines of graduated rates, and remit the same to KRA on or before the 9th day of the month following the month in which the income is earned.
Further, the responsibility of ensuring that all income earned remains with individual taxpayers. For a case of employment income, all employees are expected by law to file annual returns on or before the 30th day of June the following year. KRA takes serious action on cases of integrity.
All reported cases are fully investigated and appropriate action taken. Information on corruption can be communicated to KRA via firstname.lastname@example.org, or on phone at 020-2817700/7800, or by physically visiting our offices. One can also share information through our web-based anonymous reporting system, iWhistle.kra.go.ke.
In the recent past, your institution has taken businesspersons to court on tax-related offences, including evasion. For sustainability, your institution needs to expand the tax bracket, including bringing on board many young Kenyans. Do you have any tax education programmes targeting our institutions and how can one partner with you?
Komen Moris, Uasin-Gishu.
There are various tax education programmes in schools that have been initiated by KRA as follows: Sensitisation program in Schools- KRA introduced outreach programmes in schools (both primary & secondary) in 2012. This is an initiative where KRA sensitizes both students and teachers on importance of taxation, hence inculcating a taxpaying culture in students from an early age.
Soo far over 1 million students in over 800 schools in 44 counties have been sensitised. Formation and institutionalization of Tax clubs-This entails formation of clubs known as ‘Tax clubs’ whereby students are enrolled and training on taxation is facilitated by KRA.
Through these clubs, students get opportunities to network with fellow club members from different schools and appraise themselves on tax matters. KRA has so far engaged over 500 schools and sensitised over 1 million students in 44 counties.
Plans are underway to facilitate formation of the clubs in Wajir, Mandera and Samburu counties.
Teachers’ seminars-From time to time, KRA conducts special tax seminars for teachers from various schools. Once trained, these teachers are appointed to be patrons of tax clubs in their schools hence becoming great influencers to their students. Tax club conventions-Every year, the Authority holds conventions for various tax clubs in schools.
Students from various schools countrywide, compete through song, poems, dances, skits based on tax themes and the winning club performs before the President at the Taxpayer’ Day event. Job shadow program-During the school holidays; selected tax club members undergo a one-week job shadow program in the KRA offices near their homes.
The students get paired with KRA staff from different units to help them learn more about services offered by KRA. The Authority also undertakes various programmes targeting university students through initiatives such as Universities Tax Societies and University Tax conference/symposiums. Those wishing to collaborate with the Authority in various tax programmes targeting schools can contact the nearest KRA office for more information.
11. Sir, due to the current economic meltdown in the country, KRA, similar to the 47 county governments, will be forced to review its revenue projections for this year and probably the next five financial years. Going by this, it follows that the Authority will be forced to adjust among others its strategic plan of revenue mapping across all revenue streams. What useful lessons have you learnt on revenue generation and collection from the negative effects of the Covid-19 pandemic on the economy? Dan Murugu, Nakuru
Some key lessons have been on our responsiveness to consumer needs in light of the current global health challenge. On our, part we have been able to expedite tax refunds processing to help ease taxpayers cash flow challenges.
KRA has set up favourable debt payment plans to cushion taxpayers during the Covid-19 pandemic. Another valuable lesson has been the need to leverage on technology to adopt to the changing revenue sources markets including the digital economy. KRA’s interaction with taxpayers has shifted with emphasis on on-line interactions encouraged as opposed to physical interactions.
The crisis has paved way for tax policy to play a significant role in driving economic recovery. This is evident in the major role the Authority is envisaged to play in the post-Covid-19 Economic Recovery Strategy.
12. Three years ago, your Authority introduced presumptive tax targeting informal traders like mama mbogas and mitumba dealers whose daily earning is less than one dollar. My observation is that most of the concerned traders do not support this plan due to over-taxation in Kenya of especially poor people by both the national and county governments. Given the public mood on this matter, can you scrap the same to win back the confidence and trust of all Kenyans? Dan Murugu, Nakuru
It is imperative to note that payment of taxes is the lifeline of any government and country. Every Kenyan who earns an income is required by law to pay taxes which go a long way in funding government expenditure for a better country.
Presumptive tax was introduced with a tax rate of only 15% of the single business permit fees. For instance, a fee of Ksh. 5000 would only attract a tax amount of Sh750 for a whole year, translating to 62 shillings per month and 2 shillings per day. Nevertheless, the uptake of Presumptive Income Tax was slow and hence it was repealed through the Finance Act of 2019. It is therefore not in force at the moment.
13. The alcohol industry has been one of the most affected by Covid-19 yet it’s reported that KRA has increased tax on alcohol. Don’t you think it’s a wrong timing doing so? Dickie Murimi, Kirinyaga
The Covid-19 pandemic has affected every sector of the economy including the alcohol industry. The government has provided various mechanism to cushion industry players during this season and there is room for the industry to submit a petition for relief on this product.
14. Despite easing of the Covid-19 containment measures, KRA tax collection has recorded a fall of 15%. From your view, can we all blame Covid-19 for this or there are other factors that contributed to the drop? Dickie Murimi, Kirinyaga
Yes, there has been a drop in revenue collection since the onset of Covid-19 Pandemic in the country. KRA had recorded a revenue collection growth of 11.2 per cent between July 2019 and February, 2020 before the first case was reported in the country.
The growth was consistent with the Gross Domestic Product (GDP) growth. However, in the fourth quarter (April-June) the pandemic had an adverse effect on the economy that consequently negatively affected revenue mobilization, thereby eroding the revenue growth to 1.7% for financial year 2019/20.
15. Small water vending businesses come in handy to boost government efforts towards the provision of clean water to underserved communities. The water is normally sold to customers, mostly at Sh10 per litre, in portable containers which are used to draw water from vending machines.
Why is KRA killing these small businesses by classifying them as bottlers, against the law, and requiring them to pay tax of Sh5.74 per litre yet excise duty is only charged on bottled, mineral, aerated or flavoured/sweetened water? Mukami Wanjohi
The provision ‘bottled, mineral, aerated or flavored/sweetened water’ referred to in the question was amended through the Finance Act, 2018 which required that all bottled or similarly packaged waters be charged excise duty.
As such, the law requires KRA to collect excise duty on all bottled or similarly packaged water manufactured or imported into Kenya. This is to ensure that there is equity in the tax system and that all taxpayers are treated fairly.
It is also important to note that Excise Duty is not a tax on the business but a consumer tax. This means that the person who ultimately pays the tax is the consumer.
17. What practical steps are you taking to implement tax reforms that would address issues of inequality and create a sustainable tax system? Raphael Obonyo, Nairobi
We are cognisant that some of our taxpayers either intentionally or otherwise are not declaring and remitting their rightful share of taxes. We have put in place intelligence and data driven approaches of identifying them through our iTax system and third party data.
This include information in databases such KPLC, IFMIS, Lands Registry, Banks, vehicles registration, imports and exports, insurance companies, professional associations among others. We have so far identified potential tax liability to the tune of Kshs 300 billion which we are currently verifying through our audit and investigative processes and engaging the concerned taxpayers. There is equity when each citizen pays his or her rightful share of taxes. Not a shilling more and Not a shilling less.
18. What is the rate used to put tax on safe water vending? Sh5.74 per litre is 120 per cent above our market rate. Mukami Wanjohi
The rate of Excise duty on bottled or similarly packaged waters is Ksh 5.47 per litre.
19. The government needs money badly in a tattered economy, so the pressure is on you to collect taxes. But by posting your tax officials to factories and businesses to monitor if they are paying correct taxes will be counterproductive, more so because nothing stops from some of your officials from being compromised. You will kill cows that give you milk. Government has other options, for example, to net those who have stashed stolen trillions in tax havens or recover stolen monies in various scandals. Don't pressure those who are already paying taxes. Am I saying anything wrong? Caleb Opuka, Nairobi
KRA is mandated to collect taxes and duties due for the government. In so doing, KRA develops various strategies to ensure that compliance in tax laws is enhanced.
Some of the enforcement measures KRA has used over time include periodic audits, compliance checks, targeted investigations and onsite deployment of officers.
While compliance checks, audits and investigations are periodic, onsite posting of officers not only ensures compliance by the businesses to tax laws, it also helps them to address emerging challenges relating to other compliance processes, such as registration, filing and payment of taxes.
Posting of officers is not a new phenomenon and KRA has in the past implemented measures to ensure that all officers maintain the values and principles of public officers while working regardless of whether they work from KRA officers or at the Taxpayers’ premises.
KRA through the National Assembly ratified for implementation Convention on Mutual Administrative Assistance in Tax Matters which allows KRA to engage other Jurisdictions in exchanging information for tax purposes.
This convention will be in force from November 2020 and will take effect from January 2021. Kenya has also signed and ratified 15 Double Tax Agreements for tax purposes. All financial transactions relating to the above 15 jurisdictions can be established in line with the DTA provisions.
Should an individual have specific details of tax evasion, including deposits held in foreign accounts, please share with us through our secure mail email@example.com or send them through our web based anonymous reporting system https://iwhistle.kra.go.ke/