KRA shifts to electronic system in a bid to catch tax cheats

On March 1, the Kenya Revenue Authority switched the country’s tax system from manual to a new electronic platform — iTax.

The system, which had been on a pilot basis, is expected to shore up revenue collection by roping in non-compliant taxpayers and those under-declaring their dues.

KRA’s commissioner of domestic taxes, Mr Pancrasius Nyaga, said the manual system had a lot of loopholes which unscrupulous employers used to under-declare Pay As You Earn filings.

“Whenever we have been going for audits, we have found cases of under-declarance by employers and we believe iTax will weed out such cases,” Mr Nyaga said.

All taxpayers are required to file their returns electronically beginning this month as the authority implements iTax, which allows taxpayers to register, file returns and pay their dues online.
“There will be a lot of mileage in terms of capturing the data, which is good for enhancing the level of compliance and push up revenues” Mr Nyaga added.

The taxman has his eyes trained on income tax, corporation tax, VAT, withholding tax and other domestic levies that it believes were prone to non-compliance due to the previous manual system of filling returns.

In the old system, an employee had to go to KRA offices to manually find out if his/her employer was remitting deductions from their pay. On its part, KRA could only determine who was remitting and who was not through random payroll audits.

The new platform now makes it possible for taxpayers to monitor their tax positions from the comfort of their living rooms and offices online.

Employees will be able to check whether their employer has been remitting PAYE and raise the alarm in case of discrepancies.

Lawyers and other professionals who under-declare their earnings from contracts will be easily exposed by the system, says KRA.

This is because when firms declare the amount of their legal fees or cash paid to professional contractors during filing of returns, it will be easy for the taxman to determine what has gone into the pockets of the professionals and hence the tax they are supposed to pay.

“Under the manual system, we had to go through the various manual returns to determine what is due from such entities and the tedious process only meant they declared what they deemed fit,” said Mr Nyaga.

iTax is meant to improve the existing Integrated Tax Management System (ITMS) that was blamed by users for being inefficient. The program is aimed at improving compliance and eliminating cases of tax evasion.

Perhaps the biggest difference between ITMS and iTax is that under the latter, rogue agents, who have been blamed for fleecing taxpayers and the taxman alike, will be eliminated.

iTax has a requirement that the taxpayer provides KRA with their agent’s details and PIN, which are then validated to certify that the agent is registered with the authority before allowing them to act on behalf of the authority.

Under the iTax, KRA says a lot of corroborating evidence in the declarations made in the tax returns is needed, automatically raising the standards of compliance.

For instance, employers who pay some of their staff in cash but still declare that as an expense when filing their returns will have no option but to remit income tax on such payments.

Withholding tax system is another area that will be significantly changed by iTax.

KRA has had to deal with multiple cases where taxes are withheld but not remitted, although withholding tax certificates are manually issued to the payees.

Such certificates would then be used to claim refunds from the taxman, who apparently found it hard to determine whether the money was ever remitted.

The new system generates withholding tax certificate electronically upon receiving payment from the person that has withheld the tax, and it is only with the certificate that someone can claim credit.

This, said Mr Nyaga, will ensure easy reconciliation of the taxes withheld against those paid since the system guarantees a common reference for the same transaction.

Digitisation of domestic taxes department comes just days after KRA increased the number of goods that are to be marked with new generation electronic excise stamps as it flexes its muscle to rid the market of counterfeits and to boost revenue collection.

Currently, the only goods under the Excisable Goods Management System (EGMS) are tobacco, wines and spirits. Soft drinks and mobile phones are to be included.

KRA is currently rolling out GPRS-enabled electronic tax registers on the premise that most of the existing registers are not genuine and thus provide room for revenue to be lost.

This new initiative feeds into the Treasury’s attempt to digitise services at KRA in a bid to seal revenue leakages as it seeks money to fund an ambitious development agenda and the devolved system of government.

Mr Nyaga said both the tax registers and electronic excise stamps will be interlinked to iTax as the primary system upon which digitisation will ride on.

The authority is also developing a new customs management system that will replace the current SIMBA system.

It is expected that the new programme will have greater capacity to deal with the challenges of risk profiling, valuation and administrative issues like management of auctions.

The customs management system will be integrated with the domestic taxes (iTax) system to provide a unified view of taxpayer’s international and domestic trade operations.
iTax, which was launched by President Kibaki on October 2011, was developed by India’s Tata company.

It has been in use on a pilot basis since January last year by large and medium taxpayers, who account for 80 per cent of the revenue collected.

Currently, all taxpayers have to update their information on KRA’s website to be able to use the services as the authority has warned it will no longer accept manual filing of returns.

Applications for filling returns are made online where a taxpayer gets a unique number which is used to make payments through any of the 24 banks that have been enlisted to provide agency services on behalf of KRA.