When iTax, an online platform for collecting taxes was launched, it was touted as the remedy for most of the ills, especially tax evasion, that were responsible for loss of billions of shillings in revenue.
It was therefore expected that the system would be instrumental in significantly increasing revenue by sealing glaring loopholes that tax cheats happily exploited. However, a number of hurdles have emerged sprinkling cold water on these bright prospects. Surprisingly, government officials seem to be part of a conspiracy to thwart the efficacy of the platform.
Kenya Revenue Authority (KRA) is apparently exasperated by what it perceives as roadblocks deliberately erected by those out to continue with their shady deals. Thus, the taxman has come out with guns blazing, shooting a stern letter to governors and central government officials who are dragging their feet in the use of iTax.
In the letter signed on behalf of KRA’s Commissioner of domestic taxes Alice Owuor, the tax collector said individual heads of State corporations, county governments and constitutional commissions will be held responsible for the failure.
“It has been noted that you have not been filing your returns using the iTax online filling platform despite being a mandatory requirement from 1st August 2015. This is a non-compliance on your part and is contravention of the law. Section 94(1) of the Tax Procedure Act ,2015 makes failure to submit a tax or other documents required under a tax law by due date and without reasonable cause an offence,” read the letter dated February 4th.
KRA said State officers and those doing business with government offices will not get tax compliance certificates unless they adopt the new system as the taxman is yet to update their ledgers.
According to the KRA’s protest note, the commissioner general is empowered by law to “prescribe formalities and procedures on the use of information technology” including electronic taxpayer registration, remittance of returns, payment and issuance of notices.
KRA also warned the public offices of possible legal consequences.
“The provisions of section 86 of the Tax Procedure Acct, 2015 prescribes a Sh100,000 fine for failure to submit returns online. You are therefore required to file all your tax returns through this electronic platform without fail,” the taxman said.
Counties which has the largest batch of government employees is said to be stuck with the manual tax filling system holding billions in revenues from KRA in Pay as You Earn.
The government which employs over 200,000 people is seemingly undermining its own digital campaign by not using KRA’s online system aimed at sealing tax loopholes and widening the tax net.
Last year, more than two million Kenyans used iTax to file returns in what the taxman saw as good effort to aid its third-party data collection strategy and boost revenue collection.
KRA Commissioner General John Njiraini said the plan would bring on board many taxpayers who had kept part or all their income activities off the tax radar.
“For example you do a business with county ‘X’, they will deduct the legally mandated six per cent of what they pay you and remit to KRA. They will then make that declaration in the iTax system with your details. We will have all other information regarding what you will have earned from other entities including what they paid you and what they withheld every month,” Mr Njiraini said.
“Your account in iTax will be reflecting all your income throughout the year. We will then have the factual information declared by somebody else, so where can you run? Your role will now to simply declare the right amount.”
By failing to file tax returns online, the counties and several other government agencies have effectively shielded the entities and individuals they do business with from the taxman’s digital radar.
A source from KRA confided to Smart Company that the public institutions are wary of disclosing who they conduct business with and how much they pay them.
“They know that this will enable us to know how much they pay to which contractor and who received how much from the county. The manual filling leaves them the leeway to conceal some of these data but it is ridiculous that they are frustrating the collection of the same money they expect from the exchequer,” said the source in confidence.
The manual filling is also said to be responsible for the delay in the taxman’s collection timelines with most filings done late especially from the county governments.
Last year, KRA missed its first quarter target by Sh28 billion, after salary-related taxes were hard hit by slowdown in earnings from Pay As You Earn. Only Sh65 billion was collected instead of the targeted Sh75 billion from PAYE, leading to a cash crunch that saw President Uhuru Kenyatta summon Mr Njiraini to explain the shortfall.
The taxman missed the half-year targets by Sh47.6 billion sparking fears of a huge budget deficit and diminishing hopes of funding the Sh2.1 trillion budget. Treasury said the shortfall arose from a dip in payroll taxes and delayed application of the Excise Duty Act 2015.
Ordinary revenue collection slumped with a Sh26 billion deficit in PAYE revenue and a Sh15.9 billion shortfall in VAT collection from imports.
“Ordinary revenue collection was below target by Sh47.6 billion while A-I-A collection fell short of target by Sh20 billion,” the Treasury says in the latest Budget Policy Statement.
The steep fall in payroll taxes is consistent with recent developments on the corporate scene where a number of big employers have laid off staff citing higher financing costs in the wake of a steep rise in interest rates and stiff competition from Chinese and Indian products.
Close to 20 companies issued profit warnings since late last year accompanied with retrenchments as government also froze recruitment of non-essential staff
Delayed roll-out of the Excise Duty Act 2015 from which the government sought to raise an additional Sh25 billion by pushing up prices of key consumer goods such as beer, juices, water, second-hand cars and motorcycles is also blamed for the miss.
The new law came into force in December increasing beer prices by Sh30 per litre, kerosene by Sh5.75 a litre, bottled water (Sh7 a litre), juice (Sh10 a litre) while a charge of Sh10,000 was imposed on imported motorcycles.
A Sh200,000 charge was imposed on all imported vehicles that are more than three years old and a Sh150,000 for newer ones, a departure from the previous 20 per cent duty charged on a vehicle’s value.
The taxman has been tightening its collection nuts by employing diverse strategies that include the use of cargo scanners at the main ports of entry and crackdown on illegal operators.
Three new cargo scanners are set to be installed at the Kilindini Port this month to curb contrabands and revenue leaks arising from false cargo declarations. A recent purge at the Port of Mombasa also saw KRA carry out key shake-ups in its crucial departments.
Mr Njiraini said the staff changes affecting investigations and enforcement department as well as human resources division are in line with the taxman’s reform plans even as KRA conducts lifestyle audits on its employees to weed out those colluding with tax cheats.
KRA has since started enforcing a directive requiring all beer packages, manufactured locally or imported, to have excise stamps affixed on them. Excise tax is paid by the manufacturer or service provider, but borne by the end user as part of the cost of the excisable product or service.
The law bars manufacturers or retail chains from releasing products into the market without the excise licence. Excisable products include beer, opaque beer, potable spirits and wines, ethyl alcohol, tobacco and tobacco products, polythene bags, juices and other non-alcoholic beverages, soft drinks (sodas), cosmetics and bottled water.
In its latest letter to the government departments, the taxman hinted at going for the heads of the institutions in effort to enforce compliance with the new tax filling system set to boost her revenue collection targets.
“Also be reminded of the provisions of section 103(1) and (2) and Section 104 (1) of the Tax Procedure Act, 2015 which prescribes offences by employees, agents and their companies. 103 (1) if a person acting as an employees or an agent commits an offence under tax law, that person’s employer or principal shall be treated as having also committed an offence,” KRA said in the letter copied to Treasury Cabinet Secretary Henry Rotich, his Principal Secretary Kamau Thuge and the Director General-Accounting Services and Quality Assurance at the National Treasury.
KRA also sought the attention of Chief of Staff and Head of Public Service Joseph Kinyua, Auditor General Edward Ouko and Controller of budget Agnes Odhiambo in its renewed bid to maximize revenue collections.
Section 103 (2) of the Tax Procedure Act 2015 allows KRA to institute legal action against company chief executives, managing directors, company secretaries, treasurers or other similar office bearers for failing to file tax as the taxman prescribes.
Governors, managing directors, chief accountants may in the near future face fines of up to Sh1 million ,three years in jail or both should the KRA chose to use its legal muscle to rein in those standing on its way to the Sh1.25 trillion target.