Enhancing Tax Collection Through Telco Data Mining: KRA’s Next Frontier

In its relentless pursuit of tax compliance and revenue enhancement, the Kenya Revenue Authority (KRA) is set to embark on a pioneering journey – harnessing the power of data mining from telco systems to unmask tax cheats. This audacious move comes on the heels of a remarkable triumph in a similar venture involving the integration of systems with betting companies to apprehend tax evaders.

The KRA’s modus operandi is both ingenious and pragmatic: it intends to forge a seamless connection between its own systems at the Times Towers and those of telecommunications companies. The outcome? Real-time monitoring and analysis of transactions transpiring within the expansive realm of mobile merchant accounts, including the ubiquitous Safaricom’s Lipa Na M-Pesa. This transformational integration aims to expose telcos and traders who have long engaged in tax under-declaration.

The prospect is tantalizing: a 24/7 vantage point into the intricate web of transactions amounting to trillions of shillings annually. This endeavor aligns flawlessly with President William Ruto’s unequivocal directive to ensure that every due shilling finds its way into the treasury’s coffers. Spearheading this bold initiative is a specialized team within the KRA, diligently crafting the modalities for this groundbreaking synergy between tax authorities and telcos.

David Mwangi, the acting commissioner for the domestic taxes department, affirms that this monumental integration aims to usher in an era of heightened visibility into real-time transactions. The resulting treasure trove of daily trends will become the cornerstone upon which compliance strategies are constructed to bolster revenue collection. But the pièce de résistance lies in its potential to apprehend shrewd traders who, despite amassing fortunes through mobile money platforms, have artfully managed to understate their tax liabilities.

An inside source reveals that the KRA intends to meticulously sift through data, targeting traders whose digital account transactions on platforms like Lipa Na M-Pesa Pay Bill and Till wallets belie the taxes they profess to remit. This endeavor is not merely about revenue augmentation but also a testament to the evolving landscape of tax enforcement – one that embraces cutting-edge technology to unmask financial subterfuge.

Underpinning this audacious move is the conviction that certain telecom companies have consistently undervalued transactions on their networks. This practice culminates in the deceptive underreporting of charges pertaining to airtime sales, Internet usage, and money transfers – all of which form the bedrock for tax calculations. Recent data from the Central Bank of Kenya underscores this, revealing that mobile money agents handled a staggering Sh7.811 trillion in the last fiscal year. The implications are clear: the taxes levied are intimately tied to the fees charged by mobile network operators, not the actual transaction value.

Telcos are no strangers to the tax arena, often emerging as key contributors to the government’s coffers. Safaricom, a perennial leader in timely tax remittances, epitomizes this trend. The taxes remitted by telecom giants encompass a range of levies, including a 15 percent excise duty on airtime and data bundles, bolstered by a standardized 16 percent value-added tax. The tide is further swelled by a 15 percent duty on money transfer service fees, cementing the pivotal role of mobile phones as a wellspring of government revenue.

The forthcoming integration with telcos follows a well-executed interlinkage strategy with betting firms. The KRA’s 8th Corporate Plan stands as a beacon, envisioning comprehensive integration with internal and external systems in a phased approach. The triumphant alignment with betting companies demonstrated past successes, offering valuable insights into the viability of such collaborations.

The narrative diverges, however, when comparing the operational dynamics of betting companies and telcos. The KRA’s primary aim with telcos is not the daily remittance of taxes, as witnessed in the realm of betting, but rather an unprecedented real-time visibility into sales. This revolutionary approach marks a paradigm shift from tax calculations based on self-declarations to a proactive stance anchored in data-driven insights.

Once this integration materializes, the telecom industry will join the ranks of those under the KRA’s watchful gaze, casting aside the outdated model of sporadic tax declarations. Manufacturers in sectors like alcohol and cigarette production have already been subjected to continuous scrutiny through real-time data transmission and surveillance. This digital vigilance has become emblematic of modern tax enforcement, ensuring that businesses are held accountable in an era where financial opacity is becoming increasingly untenable.

The KRA’s ambitions are galvanized by its recent fiscal performance. The agency narrowly missed its targets for the fiscal year ending June 2023, an anomaly after three consecutive years of hitting the mark. While the agency managed to collect Sh2.166 trillion against a Sh2.273 trillion target, its sights are firmly set on the Sh2.496 trillion goal for the current fiscal year.

President Ruto’s resolute belief in Kenya’s tax potential is reflected in his assertions that the nation can harness up to Sh3 trillion annually. This ambitious aspiration underscores the urgency for transformative strategies that transcend the traditional role of tax administration. As the KRA pioneers this unprecedented integration with telcos, it propels Kenya toward an era of comprehensive transparency, unearthing every shilling due and paving the way for sustained development and progress.