KRA now targets mobile money to smoke out tax cheats

The Kenya Revenue Authority (KRA) is seeking access to individual and companies’ mobile money transaction records in a move that is intended to open a new front in the fight against tax cheats.

KRA is targeting mobile money as part of the agency’s financial data gathering scheme that is meant to monitor businesses and individuals who are not paying their fair share of taxes.

People familiar with the plan said the taxman is at an advanced stage of rolling out a number crunching mechanism that will use electronic data to suggest incomes of those using mobile money to pay bills and make purchases.

KRA commissioner-general John Njiraini said the move is part of the effort to expand the tax net and rope in individuals and businesses using retail level data.

“Initially we plan to focus on merchant transactions — the paybill — before moving to other mobile money transactions,” Mr Njiraini said.

The KRA plans to feed the M-Pesa transactions into its Data Warehouse and Business Intelligence (DWBI) solution that is expected become operational in September to profile financial activities of millions of M-Pesa users and suggest their income levels.

The taxman will initially use the more than 36,000 active till numbers to monitor individual transactions going by the latest official data that Safaricom released in November.

The Lipa na M-Pesa service transacted Sh15 billion last September alone, indicating the huge data mining opportunity it offers the KRA to hunt down tax evaders it blames for its missed collection targets.

The KRA, which is already receiving customs data showing what owners of specific PIN numbers import and export, what those trading with the top 3,000 companies and government institutions are paid, is also planning to mine stock exchange and property purchase records for any inconsistencies that might reveal tax evasion.

While releasing its revenue collection results last month, the KRA made public its quest to gain access to bank records as part of the effort to smoke out businesses and individuals who have been understating their income to reduce their tax burden.

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The KRA’s critics, however, said the legal machinery required to set the new initiatives rolling, including constitutional amendment, will be too huge to bear.

Consumer Federation of Kenya (Cofek) secretary-general Stephen Mutoro said while the plan is well intended, it may end up killing growth of banking and mobile money penetration even as it exposes institutions to lots of litigation.

“I think the KRA is targeting the wrong people. M-Pesa transactions are small amounts and the fact that my line is used does not mean it is my income, I could have been a mere channel. We will just end up forcing people to the black market and the mattress accounts,” Mr Mutoro said.

Cofek said Article 31 of the Constitution affords citizens the right to privacy and the only legal mechanism to have that changed will involve a referendum.

“We may also be forced to involve Article 35 to seek which information is in government’s custody to warrant them make such a move,” Mr Mutoro said.

Mr Njiraini, however, said proposals have been made to legally facilitate the move that will also see the taxman bring to light new indicators of compliance and risks as well as create a micro-segmentation of tax-payers and differentiate treatment of each segment.

Mr Njiraini defended the plan as the only viable way to evenly distribute the tax burden between those in business and those in formal jobs.

“This is just part of our tax base expansion programme, we are not trying to snoop into people’s bank accounts. Since these people do business and will have some transactions in the bank, we need to use a tool to ensure they pay tax and we believe access to bank information will facilitate that,” he said.

The KRA’s data centre will plug into the Nairobi Securities Exchange, the Integrated Financial Management Information (IFMIS), the government platform where most payments now occur, and a host of other crucial sources of business data to expand the taxpayer base.

The KRA missed its nine-month revenue collection target by Sh69.1 billion attributing these results to bad corporate results and decline in imports during the period.

The taxman’s collections, however, rose 7.5 per cent in the quarter despite the hard financial times that has seen three banks slide into receivership as many others reported a surge in toxic loans, a sign that businesses were struggling.

Other target areas the revenue collector hopes to use in broadening the tax base include commercial small scale farmers and landlords.

The KRA’s objective is to raise the number of active taxpayers to four million by 2018 from the current 1.6 million out of 8.1 million people registered in the Personal Identification Number (PIN) database.

With the M-Pesa plan, an individual’s expenditure, including bill payments, will be readily analysable and data matched with tax filling information to reveal discrepancies the taxman will question in an effort to collect the last coin of revenue.

The taxman has in recent months been wooing land owners with a plan to have them remit rental tax through the M-Pesa platforms but the uptake has been painstakingly slow.

There are 18,000 merchant outlets that accept M-Pesa person to business payment scheme, potentially bringing them to closer scrutiny as the taxman seeks to raise more revenues and bridge tax collection target gaps.