The Kenyan government has announced a new policy that will designate all digital payment systems as virtual electronic tax receipts (ETR) systems starting December 25th, 2024, with the goal of increasing tax revenue. This Christmas gift will mean services such as M-Pesa and Bank PayBills, till numbers and other merchant payment systems will be deemed as ETR systems.
Former Cabinet Secretary and now Senior Economic Advisor to President Ruto, Moses Kuria, spoke of Kenya’s strong digital payments ecosystem urging stakeholders to inform users of impending changes.
“Please whisper to them that come Christmas 2024, all pay bills will also be virtual ETRs for purposes of KRA,” said Mr Kuria, adding that the tax authority, led by Commissioner General Mr. Humphrey Wattanga, was part of the initiative.
The president’s advisor lamented that the number of registered ETR devices remains low at only 200,000, representing a small fraction of potential users. He noted that there is huge disparity from digital payments, via banks and mobile money, and the large active user base. Kuria sees this new policy as a chance for the government to “harvest” more revenue from the proletariat.
“Combined, all our telcos and the banks who are doing mobile money , we’ve got, you know, what we call digital touchpoints for payments, two million of them. Ten times the ETRs we have at KRA. That just speaks to the huge, huge opportunity that Kenya has to even have what I would call the early harvest”
With the move, mobile money payments will also be deemed as good as an eTIMS receipts and therefore be admissible for income tax deductible purposes.
Leading telco, Safaricom, reported 633,000 active Lipa Na M-Pesa merchants in its last financial results. Equity Group claims to have over 1.1 million Pay with Equity merchants and 30,000 POS merchants in the 6 countries it has prescence.
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Kuria stated the move is part of the government’s efforts to raise more taxes from working Kenyans. He claims many Kenyans work informally, hence, avoid remitting income tax.
“I just speak on one area of taxes, the income taxes. In Kenya we have got, you know, a very funny, very weird structure of the workforce. People in the formal sector, both in public sector and the private sector, we have got 3 million people within the formal sector. Within the informal sector, we’ve got 16 million,” stated Moses Kuria
According to Kuria, despite comprising only 3 million taxpayers, the formal sector contributes a substantial 500 billion shillings (approximately $4 billion) in income taxes. In contrast, the informal sector, with its 16 million individuals, contributes a mere 12 billion shillings. The president’s advisor sees this disparity as not merely an economic problem but a multifaceted issue with significant socioeconomic, ethical, and equity implications.
“How can 3 million people disproportionately carry the burden on behalf of 16 million people who are virtually not contributing in terms of income taxes?” he poised.
iTax Overhaul
In a meeting earlier this week, focused on the digitization of revenue collection processes, Treasury CS John Mbadi, announced a series of tax system reforms set to take effect in November.
He stated that his ministry will collaborate closely with the KRA to modernize the iTax system. Furthermore, the Integrated Customs Management System (iCMS) will undergo an overhaul to address significant revenue leakage.
Like Kuria, Mbadi highlighted the significant gaps in income tax visibility among professional services such as lawyers and doctors. Lastly, the government aims to increase rental income tax collection by KES 100 billion annually by closing existing loopholes in the current system.
