The Kenyan government has pulled back on its plans to convert M-Pesa paybills into electronic tax registers (ETRs) and is instead focusing on other revenue generating initiatives. Initially the government had set December 25 2024 as the deadline for all digital payment points to be converted into virtual ETRs. This was to close the gaps in the growing digital economy where revenue leakage has been a big concern. But after engaging with various stakeholders to ensure technical and operational readiness the KRA has decided to reconsider this plan.
KRA said while integrating digital payment platforms into ETRs is still a priority, they are taking a more gradual approach. Stakeholder feedback will play a big role in shaping this technology. The tax body will communicate further once the consultations are done.
At the 2024 Tax Summit, Moses Kuria, senior advisor to the Council of Economic Advisors said the government wants to see payments made through digital platforms to be more visible. The idea was to leverage the country’s high level of digitization, especially the use of mobile money, to boost tax compliance. But for now the government has shifted focus to small businesses and rental income earners both of which are key revenue streams for the 2024/25 budget.
Small businesses that benefit from the simplified turnover tax regime and individuals who earn rental income are the KRA’s current focus. The turnover tax introduced in 2007 simplifies tax compliance for small businesses especially those with annual turnover between Sh1 million and Sh25 million. These businesses pay a flat 3% tax on their turnover.
Besides this the government is also focusing on streamlining compliance for Value Added Tax (VAT), rental income tax and turnover tax. The National Treasury says rental income tax applicable to those earning between Sh280,000 and Sh15 million per year can generate up to Sh100 billion per annum which is a big jump from the current average of Sh10 billion.
This will help the KRA achieve its Sh2.92 trillion revenue target for 2024/25. And build for future plans to add more digital payment systems.