Kenya’s taxman: we are coming for mobile money transactions

In a bid to enhance tax compliance and boost revenue collection, the Kenya Revenue Authority (KRA) has mandated all registered taxpayers in the country to authenticate their phone numbers on the iTax system. This online platform allows taxpayers to register, file returns, make payments, and manage their tax obligations remotely, facilitating seamless tax administration.

“KRA reminds all taxpayers that further to our public notice on ‘Taxpayer Register Data Clean up Exercise’ dated June 24, 2024, all registered taxpayers are required to authenticate the mobile phone number registered in iTax upon logging into the system,” KRA stated in a public notice this week.

The initiative aims to rope into the tax net millions of informal sector traders who utilise mobile money accounts to conduct their business. It aligns with the government’s renewed efforts to broaden the tax base, eliminate tax evasion, and reduce dependency on borrowing. These efforts are part of the package of economic reforms agreed to in Kenya’s $3.6bn loan program with the International Monetary Fund (IMF), which ends in April next year.

In 2023, the value of mobile money transactions in Kenya increased to 7.95 trillion shillings ($49bn), according to data from the central bank.

However, many traders who use mobile money remain outside the tax net. This has prompted fresh efforts to integrate KRA’s systems with the over 30 million registered customer accounts of Safaricom’s M-Pesa and Airtel Money.

Expanding electronic tax registers

Moses Kuria, a senior member of the Council of Economic Advisors to President William Ruto, indicated that by the end of the year, mobile money accounts used by businesses and merchants in Kenya will be converted into electronic tax registers (ETRs).

An ETR is a cash register equipped with fiscal memory to record all transactions in real time, ensuring traders account for VAT charged at the point of sale. These devices are usually monitored by the taxman to ensure tax compliance.

“Today at KRA, the number of people who have devices for VAT, the ETR devices, is only 200,000. Combined, all our telcos and the banks doing mobile payments have what we call digital touch points for payments; two million of them. That’s 10 times the number of ETRs at KRA and speaks to the huge opportunity we have in digitising our revenue framework,” he said at a tax summit in Nairobi this October.

Under Kenya’s tax laws, any individual or business supplying taxable goods or services worth Ksh 5 million ($38,687) or more annually must register for VAT and obtain an ETR device. However, uptake of ETR devices among informal businesses remains persistently low. The initiative to convert businesses’ mobile money accounts into ETRs is anticipated to address this issue.

Privacy concerns

The taxman’s latest move to tap into mobile money accounts is part of a broader push to boost compliance by leveraging the use of national databases such as import records, motor vehicle registration details, land registries, and utility bills to smoke out individuals whose expenditures do not correspond with their tax payments. Tax experts, however, argue that these efforts could pose a risk to taxpayers’ privacy if poorly implemented.

“While combating tax evasion is a legitimate goal, it must be pursued in a way that respects privacy rights, due process, and legal safeguards,” says Wakaguyu wa-Kiburi, a tax consultant in Kenya.

She argues that there are still unresolved concerns about the adequacy of existing safeguards to protect taxpayer confidentiality and prevent potential misuse of personal information.