KRA Enlists big Companies to Arrest Wealthy Tax Cheats

In a new effort to root out tax evasion and boost revenue, larger corporations will be penalized for doing business with suppliers who are not listed on the electronic tax invoice registry.

The Kenya Revenue Authority (KRA) says it will not accept invoices from suppliers not captured in the electronic tax invoice management system (e-TIMS), an Internet-enabled tax register that relays real-time sales data to the taxman for firms registered to collect value-added tax (VAT).

The authority is now requesting that all suppliers be listed in the e-TIMs, broadening the registry’s mandate beyond VAT.

With this new system, the KRA will not recognize expenses paid to suppliers who are not listed in the e-registry, lowering a company’s costs while inflating profits, increasing their tax obligations.

It is aimed at bringing on board small and medium businesses that are sometimes outside the tax net.
The proposed regime will also assist the KRA in pressuring traders to pay their fair share of taxes, as part of a slew of measures aimed at replenishing the Treasury’s coffers.

The government intends to increase tax collection by 17% to Sh2.57 trillion in the fiscal year that begins in July.

“So they (registered taxpayers) will insist you must be registered. When you compel everyone to register, you will start bringing out those people who are hiding,” he said.

Within the tax community, this is known as the “Missing Trader Scheme.” KRA investigators estimate that approximately Sh65 billion in fake invoices have been issued since 2015, with the peak being in 2016 when Sh32 billion in fake supplies were completed.

The KRA also intends to use the new system to recruit more VAT agents, noting that there are many businesses with a yearly turnover of more than Sh5 million that have not been registered because their transactions have not been visible to the KRA.

Mr. Obel stated that the KRA wants to increase the number of VAT-registered agents from 113,239 to more than 300,000, even as the government targets the pervasive informal sector that has been tax compliant.
The informal sector is one of the potential revenue sources for the taxman, with President William Ruto setting a target of Sh4 trillion in the medium term.

The Treasury believes that eTIMS has the greatest potential for growth in its ambitious plan to increase revenue to Sh3.8 trillion by 2027.