What KRA needs to do before leveraging on digital intelligence to weed out tax evaders

  • 13 May 2022
  • 3 Mins Read
  • 〜 by Amrit Labhuram

The Kenya Revenue Authority (KRA) has announced the establishment of an advanced forensic laboratory that will provide the authority the capability to access financial data from taxpayers’ computers and mobile phones, in a bid to detect tax evasion and to reduce financial fraud. 

The Kenyan economy in 2021 approximately lost out on approximately $500 million due to corporate tax abuse, amounting to 0.8% of the GDP. Furthermore, the looming debt burden has increased the pressure on the national government to generate more revenue and has compelled the KRA to allocate KES 31.19 million to acquire intelligence gathering equipment and tax monitoring system to crackdown on tax evaders 

The development of KRA’s intelligence management division emanates from the increasing number of online transactions and growing preference by businesses to keep electronic records instead of the traditional paper-based accounting system.

According to KRA, the investigation of tax evasion offences requires sophisticated data acquisition, mining, analytics, and storage tools in addition to technical expertise to reconstruct the transactions and provide insights into complex crimes and financial flows. 

The new age digital tax monitoring measures being considered for deployment by KRA include: 

  • Internet-based electronic tax registers (ETRs) that allow KRA access to business’s  sales systems for real-time monitoring of their daily sales; 
  • Installation of flow metres and CCTV cameras in alcohol and bottling plants in an effort to tighten oversight. This includes the use of mass custody flow metres that will track high volumes of alcoholic beverages produced to maximise the excise tax collected; and
  • Use of drones for aerial surveillance to verify the true value of property for tax purposes.

Traditional and online media over the last few days have been headlined with misleading articles that have attributed the development of KRA’s forensic intelligence lab to the authority engaging overtly intrusive investigations. This has resulted in the wider public voicing concerns that their non-tax related personal data stored on the seized mobile and computer devices will be accessed by the authority, including private WhatsApp messages. 

However, Kenya’s data protection legal framework has provisions and safeguards that justify the collection and processing by public authorities, especially if the data processed is necessary in the exercise of official authority vested in the public body. Public authorities, including the KRA are lawfully permitted to process an individual’s personal data, including their tax and financial information, as the collection of tax and the fight against tax fraud are considered tasks carried out in the public interest. 

However, KRA needs to conduct data protection impact assessments before they begin using the tools and tech that forms part of their forensic laboratory so as to determine whether the purported investigations and access and processing of tax-related personal data is performed in compliance with the rest of the Data Protection Act and its subsequent regulations. The use of advanced data mining and analytic tools should be utilised in a transparent manner, with the owner of the mobile or computer device duly informed of why their devices are being analysed and the files and applications that will be accessed to determine tax compliance. 

Huduma Namba and Tax collection

Currently at an advanced stage before the National Assembly, the Huduma Bill seeks to revolutionise the identification of taxpayers and offer a new tool in KRA’s arsenal. The Bill proposes amendments to the Tax Procedures Act, 2015, to ensure every resident individual enrolled in the National Integrated Identity Management System (NIIMS) shall be automatically registered as a taxpayer upon attaining the age of 18.  If enacted, the unique Huduma Namba assigned to each individual shall serve as the unique PIN for tax purposes, providing the KRA with a large depository of information that can be used to identify and prosecute individual tax evaders and business owners. 

Tax evasion contributes to Kenya’s inability to service its domestic and international debts, which has surpassed KES 8.2 trillion as of December 2021, according to the Central Bank of Kenya. The KRA has the enormous responsibility of ensuring each resident individual and corporate entity pays their tax obligations, and the creation of the advanced forensic lab will in due course improve tax compliance and reduce instances of tax evasion within Kenya.