Kenya Revenue Authority's headache on digital firms

By the time Kenya Revenue Authority (KRA) official Benson Karongo finished his presentation before the parliamentary Transport Committee on Tuesday, detailing the amount of tax collected from taxi firm Uber, it was clear that the taxman is in the middle of a new war.

KRA’s current fight comes in the form of companies that need the internet to operate; firms that do not need to hang tax payment details on their premises, that cannot be forced to own an electronic tax register and that cannot be raided to check their books.

“We have not carried out an audit on Uber but we are looking at their figures. We can’t say we are happy with the taxes they have paid because we need to look at cross-border issues,” said Mr Karongo, who is KRA’s Commissioner for domestic taxes.

His talk on “cross-border issues” is bound to feature more in the days ahead as the sharing economy takes a grip on Kenya.

For instance, a visitor to Kenya need not worry about booking a room at a hotel; thanks to Airbnb, an online platform that enables any willing seller to share their home with a willing buyer.

Rather than pay say Sh6,000 a night at a hotel, part of which will go to the taxman, the visitor using Airbnb can get accommodation at someone’s place where they can pay Sh3,000, meaning the government will receive little or no tax at all.

By November 2015, Airbnb had 1,400 listings through its app in Kenya, with Nairobi having 788 individuals willing to share their houses.

GONE HI-TECH

Besides accommodation, trade has also gone hi-tech. All a trader needs is internet connection. It is just a matter of taking a photo of the item, posting it alongside their phone number and waiting for a customer’s call. In the end, big sales happens far away from the taxman’s nose.

In May last year, KRA attempted to convince Safaricom into allowing it to access Kenyans’ M-Pesa details, with suspicions that through its PayBill function, it was enabling firms to make massive sales while evading payment of taxes.

“We have been discussing M-Pesa even though we intend to first focus on the merchant transactions or the PayBill money movements,” KRA’s Commissioner-General John Njiraini said in an interview.

However, Safaricom turned down the taxman’s request, saying such information can only be obtained upon issuance of a court warrant.

In the Uber case, lawmakers feel it has been paying peanuts to the taxman while reaping billions from Kenyans. The committee heard that Uber had paid Sh30 million in taxes since 2014.

“You have not audited Uber books, you will realise they are taking out billions of shillings,” said Starehe MP Maina Kamanda, who chairs the committee as it investigates some taxi firms following a petition by conventional taxis.

HEIGHTENED INTEREST

Kenya has witnessed heightened interest from taxi firms, with at least three foreign-based firms in operation. Besides Uber, there is Taxify that has headquarters in Estonia, Mondo Ride that is based in Dubai among others.

As KRA seeks the best way to catch up with the new business models, tax expert George Owino says the existing legislation on taxes will soon catch up with those who think the internet is the hiding place.

Mr Owino, who works with Nairobi County Tax Consultants, told the Nation that anyone who sells an item or service in Kenya, whether through the internet or via traditional means, is liable to pay tax — unless the item is exempted.

In Mr Owino’s view, amendments to the VAT Act that took effect in 2014 covered all transactions.

“It talked about supply of services. So long as it is supplied within Kenya, then it is within the jurisdiction of the VAT Act,” he said.

But in the case of international firms, he noted, it gets tricky because if a company is not based in Kenya and it only helps a seller meet a buyer, taxing it is a challenge.

But in case a Kenyan makes a sale through a global internet-based firm, he said, the onus of paying tax falls on the individual.

WITHHOLDTAX

“Because the other company is not here, we will hold you accountable. What you are supposed to do is that before you pay them their amount, you are supposed to withhold tax on behalf the government then you remit to KRA within 20 days,” he said.

“You must take initiative and know the correct rates. So, the government will rely on you to do that because you are the resident there,” he added.

Insisting that paying tax is usually dependent on good faith, Mr Owino said that KRA might one day catch up on such errant individuals.

“Tax works on disclosure and good faith, because even when filing tax returns, nobody comes and directs on how you do that. The problem comes when you live on assumptions or you fail to do your part. But one time, things might catch up with you. Then of course you will suffer consequences for whatever period is involved,” he said.

Mr Evans Lang’at, whose part-time job is helping Kenyans file tax returns, said the time of reckoning for tax cheats will come when KRA conducts an audit of the business transactions.

“KRA can just check the revenues on their systems because they can track the revenue,” he said.

“If you register a company, you must comply in terms of taxes because at the end of the day, you need the compliance certificate. That is why you must comply and you must file all the taxes,” added Mr Lang’at.