The Kenyan government is set to implement sweeping tax measures that will allow the Kenya Revenue Authority (KRA) unprecedented access to citizens’ M-Pesa and bank accounts. This initiative, reported by the Star, is designed to combat tax evasion by tapping into previously undisclosed revenue streams.
The move comes as the government seeks alternatives to syndicated loans, aiming to boost its revenues through direct tax collection.
Legal Amendments and Increased Scrutiny
The proposed changes, outlined in the Finance Bill of 2024, include amending the law to exempt KRA from current restrictions on accessing private taxpayer data. The bill states: “The processing of personal data is exempt from the provisions of this Act if disclosure is necessary for the assessment, enforcement, or collection of any tax or duty under a written tax law.”
This will allow KRA to require banks and telecommunications companies to hand over financial transaction statements of customers, potentially leading to tax demands if financial activities suggest undeclared income.
Potential Impact on Privacy and Legal Concerns
Currently, the law restricts access to private data unless it relates to personal activities, national security, or public interest, with some court-ordered exemptions. However, if the bill passes, KRA would be able to scrutinize all income sources, including those beyond regular salaried earnings.
Critics worry this could infringe on privacy rights, and historically, evidence obtained illegally from private data has often been dismissed in court, complicating enforcement efforts.
Tax Revenue Goals and Electronic Compliance
The government aims to raise over Sh350 billion in additional tax revenue this fiscal year to help close the gap in its Sh3 trillion budget. Part of the strategy includes requiring traders to report their sales through the electronic tax system (e-Tims) and integrating their operations into this system. Failure to comply with electronic document submission could result in hefty fines, adding further pressure on businesses.
The proposed amendments also suggest a broader attempt to target the middle class, with new taxes on goods supplied to government agencies and increased excise duty on telecommunications and financial services.
For example, the excise duty on phone and internet data services may increase from 15% to 20%, and similar increases are proposed for money transfer services and betting. Banking services, previously exempt from VAT, would now face both VAT and excise duty, likely resulting in higher bank charges.
Potential Effects on Consumers
The Treasury plans to adjust tax policies on various services and items, with significant implications for everyday financial activities and costs. For instance, the introduction of taxes on foreign exchange transactions could affect forex bureaus and impact import prices. Although most household goods have been spared from increased taxation, the decision to remove the zero-rated status on bread could lead to higher prices for consumers.
The sweeping tax reforms proposed by President William Ruto’s administration are poised to transform Kenya’s taxation landscape. While aiming to enhance revenue collection, these changes are likely to have wide-ranging effects on both privacy and the financial burden on the middle class and businesses across the country.
