Did you think your M-Pesa transactions were secure? Not if KRA has its way.
The Kenya Revenue Authority now plans to track our M-Pesa transactions to establish if what you declare on your tax returns matches what goes in and out of your mobile wallet.
The authority needs to collect Sh1.9 trillion this year to finance the government’s Sh3.02 trillion budget.
So just to be sure you at not shortchanging the state, KRA plans to access and keep track of your financial flows through M-Pesa, PesaLink, PayPal and other mobile money platforms.The data will help the taxman match it with your returns to see if the figures are consistent.
Also on KRA’s radar for revenue are companies operating digitally in Kenya but with foreign physical addresses, such as Facebook, Twitter, Uber and Amazon among others.
KRA officials told the Star authority is aware of evolving businesses in the country, most of which have gone digital, hence generating money online.
Joseline Ogai, KRA deputy commissioner for Research, Knowledge Management and Corporate Planning, and Maurice Orei, a deputy commissioner in charge of Policy, said the authority has embarked on data matching in an increasingly digital economy.
In an exclusive, wide-ranging interview at Times Towers, the officials said data matching will help it monitor the transaction and reconcile the tax returns with the financial flows relating to an individual or company.
“We are taking data matching very seriously as our next frontier in digital revenue monitoring. Soon, we will be able to catch tax cheats who make nil or few entries in their tax filings, yet the money they generate online is high,” Ogai said.
“You cannot say you file less in returns but the amount of money you handle in your M-Pesa, maybe generated from your side hustles, is high and you are not declaring,” he said.
The deputy commissioners said the new approach is based on the fact that the informal sector is fledgeling and the conventional way of tracking financial flows has led to a lot of leaks.
“When I pay my mechanic, I use a mobile platform such as M-Pesa as the transaction is quick and informal. So if you look at that person [the mechanic], you may think he has no income yet he has, but informally, and he does not declare,” Ogai said.
He said while most commercial entities with mobile payment platforms such as paybill tills have a mechanism of tax compliance, numerous others avoid the tills, requiring their customers to pay via M-Pesa but in the conventional way of sending money directly.
They too must be netted to pay their fair share, Ogai said.
The use of data matching, according to the deputy commissioners, is already paying off. They cited cases in which high-profile business entities were spotted for allegedly evading paying tax by manipulating the system.
In one case, Ogai said, the data KRA had in its system had created a pattern over the years but they changed suddenly over a period, raising suspicion.
“We have data from the annual returns. The data includes the amount of salaries the corporates pay, their revenues and the tax they should pay. If we get less, we must get an explanation,” he said.
Further, the taxman will now connect money trails to monitor payments in the economy so that “we see if people receiving the payments as well as those making them are declaring,” Ogai said
“We will be asking you, ‘Why are you declaring this much [if it is less], yet so and so received payments from you, suggesting that your earning is higher?,” he said.
The push by KRA to monitor your mobile money transaction record is not new.
In 2016, giant telco Safaricom rejected the Treasury-backed taxman’s quest to gain unfettered access to its customers’ mobile money records.
KRA justified its move then, as now, that it was after busting tax cheats and widening the tax base.
In rebuffing KRA, Safaricom said there were no legal regimes that would allow the taxman access to the customer data as it would be a breach of confidentiality.
To address this hurdle, the officials told the Star that KRA is pinning its hopes on the Data Protection Bill already before the National Assembly to clear any grey areas that have barred it from accessing individuals’ digital money data.
Section 7 of the Data Protection Bill, which is undergoing stakeholder participation before the Senate, gives public institutions a sweeping mandate to access personal data without first seeking permission from an individual.
“An agency shall, subject to Subsection (2), where it requires personal data from a person, collect such information directly from the data subject for a purpose which is specific, explicitly defined and lawful,” the draft law reads.
These lawful purposes include prevention, detection, investigation, prosecution, and punishment of crime or complying with an obligation imposed by law.
“It is not that there are no laws empowering KRA to generate revenue from online transactions. But the hue and cry that arose when we first sought to implement this approach will be addressed by the Data Protection Bill currently before the House,” Orei said.
The officials said KRA is under immense pressure to generate more revenue to fund government ambitious projects, such as the Big Four agenda. Such pressure is normal, they said.
Foreign companies
Ride-hailing services such as Uber and Taxify as well as online malls such as Jumia and Kilimall among others will be accessed through this arrangement.
Facebook, Inc., the American online social media and social networking service company, is based in Menlo Park, California. Twitter is also American, headquartered in San Francisco, California.
Taxi-hailing company Uber is headquartered in the same city.
All of these companies operate in the country but their revenue is repatriated to their home countries.
Orei said the tax authority has entered into international partnerships that would see it appoint tax representatives abroad to assist it with collecting revenues for companies resident there.
For example, he said, Amazon which digitally operates in Kenya but has physical office addresses outside KRA’s jurisdiction, will be taxed through an appointed tax representative.
The representative will then remit revenues to KRA.
“All the companies even PayPal, Facebook, Twitter and others will now remit their revenues to our representatives in the countries where they are domiciled for onward remittance to us to help the government fund its projects,” Orei said.
The international partnership envisaged will only be realised if MPs ratify an international tax alliance framework called the Mutual Agreement Contract (MAC), which the authority signed recently.
“The MAC framework is already before the lawmakers to ratify and domesticate. We hope they expedite this so that it starts rolling,” Orei said, emphasising that this was part of the wider policy to broaden the tax bracket and collect more revenue.
