Kenya has been actively addressing tax leaks for the past few months, resulting in significant progress. The Kenya Revenue Authority (KRA) has not only met but exceeded its targets, achieving a remarkable 6.7% increase in the financial year of 2022/2023.
Compared to the 2018/2019 financial year, KRA’s managed collection has risen from KES 1.58 trillion ($23.2 billion) to KES 2.166 trillion ($32.2 billion) in the recently concluded financial year ending in June 2023. These figures indicate that KRA has accumulated an additional KES 586.259 billion ($8.9 billion) in tax revenue over the past five years.
Despite an unfavorable global fiscal environment leading to an economic slowdown, the Kenya Revenue Authority (KRA) achieved a noteworthy revenue collection of KES 2.166 trillion from July 2022 to June 2023. This collection surpassed the previous financial year’s total of KES 2.031 trillion. According to a statement released by the KRA, the revenue collection for the financial year 2022/2023 was KES 135 billion higher than the amount collected in 2021/2022.
Digital revenue drivers
In recent years, Kenya has expanded its tax base by introducing new avenues for taxation, such as implementing taxes on the digital economy. While these measures have faced some criticism from the local population, the government has proceeded with taxing crypto exchanges and social media influencers, which were recently approved. However, it is important to note that the effects of these new tax areas, which were implemented at the beginning of July 2023, will only be reported after the 2023/2024 financial year.
In a previous administration, the government of Kenya introduced a digital service tax (DST) in addition to a value-added tax (VAT) on digital market supply. This legislation aimed to levy a 1.5% tax on the total value of digital services. As of January 2021, individuals earning income by providing services or products online were obligated to pay this tax. Moreover, the law stipulated that both Kenyan residents and non-residents with permanent establishments in the country could offset the tax amount as a deduction against their income liability for the respective year. In a recent development, Kenya increased the DST rate to 3% in the previous year. Consequently, the Kenya Revenue Authority (KRA) collected KES 5.328 billion ($37.5 million) from these tax sources, reflecting a remarkable growth of 207.9% compared to the preceding financial year.
The Kenya Revenue Authority (KRA) issued a notification to the public and all Value Added Tax (VAT) registered taxpayers regarding the transition from old electronic tax registers to the Tax Invoice Management System (TIMs). According to the KRA, VAT-registered taxpayers needed to acquire the new electronic registers by mid-2022. This transition was implemented to facilitate the generation and electronic transmission of tax invoices in compliance with the VAT (Electronic Tax Invoice) Regulations 2022.
They are implementing the electronic Tax Invoice Management System (eTIMS) to achieve multiple benefits, including reducing compliance costs by lowering hardware expenses and improving the accuracy of real-time invoice transmission. This, in turn, would enhance the process of declaration and reconciliation between tax returns and payments. Noteworthy features of eTIMS include cross-platform access, enabling taxpayers to use computers and mobile phones to access the system. The system is designed to be user-friendly and adaptable, providing a convenient solution for taxpayers to meet their compliance requirements efficiently.
Since its implementation, the adoption of eTIMS by 95,732 VAT-registered taxpayers has resulted in a significant increase in remittances, reaching KES 272.365 billion ($1.9 billion). This positive trend in revenue performance is expected to continue improving as eTIMS becomes more widely adopted. One of the key benefits of eTIMS is its ability to simplify the process of filing tax returns. It achieves this by providing pre-populated VAT returns, streamlining the filing process for taxpayers, and further enhancing compliance.
The Kenya Revenue Authority (KRA) has significantly benefited from integrating its systems with those of betting companies. This integration has provided the KRA with real-time access to information from all companies operating within the gaming and betting industry. As a result, the KRA could collect KES 15.190 billion ($107 million) in excise and withholding tax. This large amount of money was generated after the sector onboarded 28 taxpayers.
Plans to tap more into the digital economy
The Kenya Revenue Authority (KRA) has outlined plans to leverage technology to enhance its revenue generation capabilities and transition into a digitized revenue administration. This transformation will involve integrating with various platforms, including e-Citizen, other government agencies, and private entities, particularly for payroll taxes. By streamlining these processes, the aim is to simplify and optimize revenue collection. Furthermore, the KRA intends to improve customs payment procedures by incorporating them into M-Service, a mobile payment platform. Additionally, implementing a risk management system powered by artificial intelligence (AI) will further enhance operational efficiency and effectiveness in revenue administration.