The Kenya Revenue Authority (KRA) is linking its tax collection system to the government’s procurement and payroll platforms in a bid to weed out tax evaders and boost revenue by billions of shillings.
The systems integration will give the KRA real-time visibility of the national and county governments’ procurement and payments, allowing it to track and nab suppliers earning billions of shillings from tenders without paying their share of taxes.
It will also have a live view of public servants' full salaries and perks in fresh efforts to tackle under-declaration of pay and non-remittance of full taxes.
This will be enabled by the integration of four critical public sector systems—KRA’s iTax, the Integrated Financial Management System (Ifmis), the Government Human Resource Management Information System (GHRIS) and the Central Bank System.
Rolled out in 2014, iTax is a web-based system for tax registration, filing returns and registration of tax payments, including employment, business, and rental incomes.
Ifmis is a tech platform on which the government monitors public finances, from planning through budgeting to procurement, payment, accounting and reporting.
The GHRIS was adopted in 2011 to handle employee records, payroll processing, appraisals and leave management.
“We are working on the integration of iTax, Ifmis, Government Human Resource Information System and the Central Bank’s System and I am happy to say the integration is more or less as good as done. In the next couple of weeks, this will be rolled out,” KRA Commissioner for Large and Medium Taxpayers Rispah Simiyu told the Business Daily.
“This will mean that KRA will now be able to do real-time reconciliation of all public sector-related payments made to the Central Bank of Kenya. It is a departure from the present where the public sector makes all payments to the central bank and then KRA has to do backend reconciliation.”
The KRA says the integration of the systems will help plug revenue leakages in the public sector, which contributed Sh99.24 billion worth of taxes in the year to June 2024.
In 2021, an additional 230,935 workers earning above Sh100,000 monthly who were not captured in previous official data were uncovered, raising fears that firms have been under-declaring their payroll and denying the KRA its fair share of taxes.
This prompted the Kenya National Bureau of Statistics (KNBS) to revise the pay data for 2.9 million Kenyans employed in the formal sector for the four years to 2020.
KNBS said firms were omitting some regular perks while reporting the workers' payroll, prompting the revision of the salaries data.
The revision saw those earning over Sh100,000 monthly jump from 79,909 captured in 2020 to 310,884, outing over 230,000 top earners whose firms had been under-declaring their salaries.
The KRA enforcement team has recently stepped up analysis of companies’ financial dealings, especially firms doing business with the national government and counties, to unearth tax cheats by matching their payments and income declared to the authority.
The authority says tax evasion by national and county government suppliers is mainly done through faking invoices to inflate costs in a bid to cut duty obligations and failure by county governments to submit taxes withheld from the suppliers and employees.
Some government suppliers have also been filing nil returns even after earning taxable income.
The integration of Ifmis with that of iTax will make it easier and quicker for the KRA to match supplier pay with tax payments, helping catch those who do not pay full taxes on their incomes.
These are part of a raft of measures to repair State coffers by increasing tax collections and ease borrowing, the Treasury said in a draft budget statement.
Kenya spends over half of taxes to repay debt annually after it ramped up borrowing to build infrastructure in the decade to 2023, leaving little cash for projects.
This has placed the KRA at the centre of the policy that pursues a "growth-friendly fiscal consolidation plan designed to slow the annual growth in public debt.”
The KRA has struggled to bring more people into the tax brackets and curb tax cheating and evasion in the quest to meet targets in an economy where government income has consistently failed to meet targets.
The agency is increasingly relying on technology to nail tax cheats.
The KRA’s enforcement unit has been using various databases to pursue suspected tax cheats, including bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority (KCCA), which reveals individuals who own assets such as aircraft.
Car registration details are also being used to smoke out individuals who are driving high-end vehicles but have little to show in terms of taxes remitted. Kenya Power meter registrations are helping the taxman to identify landlords, some of whom have been slapped with huge tax demands.
The taxman has also sought details of suppliers and contractors hired by county governments in the quest to tighten the noose on individuals and firms evading tax.
The government has announced plans to integrate the KRA’s system to mobile financial platforms and that of commercial banks.
