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Kenya: Impact of technology on tax administration

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published on Mai 23, 2018

​The rapid wave of technology advancement in the digital world and modern economies has shaped modes of operations in all industries through creation of new opportunities and testing of existing boundaries. This is welcome by revenue authorities who leverage on modern technology as a tool to challenge the norm of tax administration.

 

  

Through technology, tax administrations have streamlined tax operations to broaden tax bases and cushion tax evasion which has consequently increased tax collection. This begs the question- how much has technology impacted tax administration?

 
The Kenya Revenue Authority, a recognized leading technology-driven revenue administrator, has implemented online platforms such as i-Tax, Integrated Customs Management System (i-CMS), Customer Relationship Management System, Cargo Scanner Management Solution and Excisable Goods Management System among others as strategic instruments to improve tax compliance and minimizing operation costs.

 

Efficiency and effectiveness

Since employing online systems in tax administration, tax revenue and levels of compliance have steadily improved in Kenya over the years, as a result the KRA collected 1.366 trillion in the 2016/2017 financial year; an added Kshs 115 billion from its previous year’s collection after tax procedures became fully digitalized in 2016. The autonomic transformation of the KRA procedures has also led to notable success in filing returns, remitting payments, applying tax refunds, lodging tax objections, applying tax waivers and requesting tax compliance certificates among others.

 
Furthermore, systems such as i-Tax provide real time updates of tax accounts which have eased reconciliation of statements with the tax authority. As a result this has built trust among taxpayers through the enhancement of transparency and promotion of accountability.

 
During the 3rd Annual Tax Summit for Africa themed “Rethink, Remodel, Rebuild: Enhancing Tax Systems for Sustainable Economic Development” The KRA Commissioner-General, Mr. John Njiraini reaffirmed the organization’s commitment to transform the nation’s tax systems through service facilitation to promote efficiency and effectiveness in tax operations.

 
“KRA has been at the forefront in transforming the country’s tax system with the goal of enhancing efficiency and tax compliance to achieve a friendlier and a more participatory tax regime,” Mr. John Njiraini reiterated.

 

Curb tax evasion

Employing contemporary technology in tax procedures has been a successful pillar in fishing out tax fraudsters and tax evaders who have cost the government billions in lost revenue. It was estimated through a 2015 report compiled by the Tax Justice Network - Africa (TJN-A), that Kenya losses Sh639 billion annually in tax evasion by multinational corporations.  The KRA through its Investigations and Enforcement Department have made grounds on identifying tax evaders who have grown bolder in their fraudulent activities.

 
In the wake of tax reforms, the KRA has singled out fictitiously registered companies and suspended inactive PINs. This was evident mid last year when the KRA de-listed over 95,000 pins of VAT non-compliant taxpayers. Moreover, over 4.8 million taxpayers face the risk of their pin being deregister for not activating their accounts on i-Tax. Mr. Njiraini asserted that the success they have achieved would not have been possible if it were not for the technology the revenue authority has employed.

 
“Up until last year, we did not have a dedicated intelligence unit, yet the biggest risks to tax collection are fraudsters, including cybercrimes. The projects we have installed have really transformed our operations,” Mr. Njiraini stated during the conference.

 

Developments in tax and technology

The unprecedented pace of technology advancement has seen many human jobs being lost to machines and artificial technology. As a result, this has sparked debates of a novel “robot tax” which was first coined by Bill Gates in an interview with Quartz.

 
Employees who would pay principal tax on their salaries are being replaced by robots that perform the same duties. It’s argued that the revenue gap the government would earn should be replaced with a new tax on technology.

 
The proposed tax discussion is only a foot in the door of the impending novel tax laws set to be introduced from technology revolution in the new word. Other impending new taxes are social media tax in Uganda and web tax in Italy.

 
Ugandan government proposed 200 Ugandan shillings ($0.05) tax on online subscribers using social media platforms such as Twitter, Facebook, Skype, Viber and Whatsapp. The tax proposal could be enforced as early as July this year.

 
Web tax in Italy is set to target tech companies such as Google, Youtube and Facebook who generate billions in profits abroad but pay minimal taxes for supply of digital services. The move is set to add an extra 114 million Euros to the Italian treasury coffers if it is implemented next year January. The tax has had a snow-ball effect as Germany, France and Spain consider its introduction in their jurisdictions. 
 
It is evident technology evolution has greatly impacted tax administration in the recent years. As the national budget grows amid budget deficits and missed revenue targets, it is be prudent for the KRA to leverage on more technology to fulfill its mandate. This will ensure the national treasury collects more revenue to achieve a financially self-sustained economy.

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