BY MUMBI MUTOKO AND VICTOR ADAR
There have been fears that the tax man’s move to grow tax compliance levels would turn out to be messy. It was therefore not a surprise when a business boldly declared on social media that it will no longer accept payments through mobile money options.
Whoever circulated the photograph, which went viral on X (formerly Twitter), Facebook and Instagram, had a tax evasion strategy. And the business owner is not alone – the anxiety has swept through the business community, leading some to put up signs that politely request customers to pay for products and services in cash.
“Many businesses are now closing Lipa Na M-Pesa merchant accounts, Buy Goods, and Pochi La Biashara Tills. We are collaborating with Safaricom to get information on such traders who are jeopardizing tax compliance measures,” the chief manager of Domestic Taxes department, Caroline Rotich said during a Media Lab session on October 17, 2023.
One of the key focus areas, she says, remains KRA’s determination to gather information about businesses discontinuing Lipa Na M-Pesa services, emphasizing the importance of tax compliance. This comes after the agency deployed 1,400 Revenue Service Assistants (RSA) nationwide to enhance tax compliance among traders.
According to a statement issued by Commissioner, Domestic Tax department, all RSAs have been trained in customer relationship management and equipped with technical skills in tax to ensure that they adhere to professional ethics and the tax laws as they serve the traders, and will visit taxpayers’ premises to assist in complying with tax laws.
“They (referring to RSAs) will specifically aid taxpayers to onboard onto eTIMS, register for correct tax obligations and file simplified returns such as Turnover Tax. KRA is also engaging business associations and other stakeholders with a view of ensuring understanding of the role of RSAs. This is expected to build a cordial relationship between the RSAs and traders that will facilitate effective service delivery and enhance compliance with tax laws,” KRA said in a statement.
In order to increase compliance in the country, she adds, the agency is aggressively conducting tax awareness programs such as extensive filing campaigns, media campaigns and tax education. In the Financial Years 2021/22 and 2022/23, it conducted “several tax education forums” where different sectors were sensitized on tax matters.
The agency further clarifies that taxpayers were reminded of their filing obligations via emails and the media. Additionally, filing support was provided physically at the KRA offices, and awareness programs have been enhanced in the current financial year, 2023/24.
“The ongoing implementation of simplified tax processes and forms to make it easier for taxpayers to comply. For example, roll out of eTIMS to all tax obligations including income tax and eventual pre-population of returns,” KRA said.
To ensure all businesses and individuals comply with the laws, the agency will ensure implementation of the Tax Amnesty introduced via the Finance Act, 2023 where penalties and interests are waived for taxpayers who clear their 2022 and prior years’ outstanding principal taxes by June 2024.
At the same time, it will utilize both third-party and internal data to identify taxpayers who are actively engaged in business and are not complying with tax laws, and auditing of cases to detect and correct areas of non-compliance.
KRA is further exploring integration opportunities with key stakeholders to optimize the utilization of information that would assist in enhancing tax compliance levels while investing in intelligence-gathering resources which enable utilization of intelligence information to identify and mitigate against tax evasion schemes.
For close to a decade, Safaricom’s Lipa Na M-Pesa Buy Goods Till service has helped small traders to collect payments on their tills and settle various expenses like wages and commissions for employees.
Products such as Pochi La Biashara were tailored to cater to informal business owners, including food vendors, kiosk operators, and boda boda riders. These services enabled entrepreneurs to manage their business and personal finances separately so much that the current tax compliance push by KRA is seen by some traders as daylight robbery – nothing could have prepared most of the businesses, and traders which are suddenly taking cash instead of mobile payments to retain more cash and probably avoid paying taxes.
According to the Central Bank of Kenya, M-Pesa accounted for a staggering 99.9% of mobile money transactions, signifying its widespread adoption. From March 2021 to 2022, M-Pesa users conducted transactions valued at over Sh13 trillion, with 87.5% of these transactions categorized as peer-to-peer payments and an additional 12.5% attributed to PayBill services.
These figures underscore the significant role mobile money payments have played in Kenya’s financial landscape. However, the recent push by KRA to ensure tax compliance is causing most traders nightmares. The agency has been diligently pursuing greater tax compliance, especially among traders.
In collaboration with Safaricom, the KRA has flagged a number of business owners who are closing their Lipa Na M-Pesa merchant accounts, Buy Goods Tills, and Pochi La Biashara Tills, a sign that there is broader strategy to ensure that tax obligations are met, and that potential tax evasion practices are stopped.
“For companies who deliberately evade paying taxes, investigations are instituted against them for purposes of prosecution,” said KRA.
In light of these developments, traders are likely to bank on alternative payment options. And one option that has garnered attention is Hawala, which is an informal way of transferring money without actual physical currency movement.
Described as a “money transfer without money movement,” this system is primarily built on trust. Due to the absence of documentation in Hawala transactions, they offer a level of confidentiality not readily available in traditional financial institutions.
Hawala, which is a system based on trust, with transactions between brokers executed without the need for promissory notes, presents an advantage to businesses and individuals which are into keeping their financial affairs guarded. It mainly relies on the balance of a broker’s account, and debts between brokers can be settled with cash, property, or (even) services.
Migrant workers who frequently send remittances to their relatives and friends in their countries of origin find the Hawala system attractive. It facilitates the flow of money between countries where formal banking services may be too expensive or logistically challenging to access.
Despite the inherent trustworthiness of Hawala, it remains an informal financial method. It operates outside the conventional financial institutions and relies on the established trust between its brokers. This privacy and convenience are the key selling points of Hawala. While there are concerns about its potential misuse, including for illicit purposes, it will offer most likely offer traders who embrace it a remarkable advantage.