The Kenyan government has announced an ambitious plan to enhance tax compliance and increase revenue collection by integrating mobile money paybill and till numbers into electronic tax registers (ETRs). This move aims to address the issue of tax evasion among businesses that use mobile money platforms but fail to comply with tax regulations. The transition to virtual ETRs is expected to be completed by December 2025, creating a more transparent and efficient tax system.
Moses Kuria, the Senior Economic Advisor to President William Ruto, revealed during the 2024 Kenya Revenue Authority (KRA) Tax Summit that over two million businesses currently use mobile money services, particularly paybill numbers, to conduct their transactions. However, out of these, only about 200,000 are registered with physical ETRs. This means a vast majority of businesses are not fully complying with tax laws, resulting in significant losses in potential revenue for the government.
The paybill and till numbers are primarily used on mobile money platforms like M-Pesa, where businesses receive payments for services or goods. While these platforms make it easier for businesses to operate, they also create loopholes for tax evasion, as many companies fail to register their transactions with physical ETRs. The introduction of virtual ETRs aims to close this gap by ensuring all businesses, regardless of their size or location, adhere to tax regulations.
Integration of Paybill Numbers into Virtual ETR Systems
The government’s new initiative is centered around converting these mobile paybill and till numbers into virtual ETRs, allowing the Kenya Revenue Authority (KRA) to track transactions and revenue flows more accurately. This transition will not only expand the tax base but also make it harder for businesses to evade taxes by using mobile platforms without proper documentation.
Kuria explained that the government has already reached an agreement with KRA to roll out this new system. “We’ve agreed with the Commissioner-General that come Christmas 2024, all paybills will also be virtual ETRs for the purposes of tax collection,” Kuria said during the tax summit. By linking mobile money accounts directly to ETR systems, the KRA will have better oversight of business transactions, ensuring that taxes are paid as required.
Targeting Large-Scale Businesses
Initially, the government’s efforts will focus on businesses that generate an annual income exceeding Sh5 million. This threshold is designed to prioritize larger companies, which are responsible for a significant portion of revenue collection. By ensuring these businesses comply with tax laws, the government expects to see an immediate boost in revenue collection.
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Once larger businesses are brought into compliance, the government plans to extend its efforts to smaller businesses, aiming for widespread adherence to tax regulations across all sectors. According to Kuria, this approach ensures that the tax system is fair and equitable, with all businesses contributing their fair share to the economy.
Collaboration with Mobile Operators
To facilitate the integration of paybill numbers into the virtual ETR system, the KRA is working closely with mobile operators like Safaricom, the provider of M-Pesa. This partnership is crucial, as mobile operators hold the key to tracking financial transactions made through their platforms. By collaborating with these companies, the KRA will be able to monitor income flows more effectively and identify businesses that are not paying their fair share of taxes.
The government believes this approach will help eliminate loopholes that some businesses have exploited, particularly those that rely heavily on mobile money for their transactions but have managed to evade taxes due to the lack of a physical ETR. With virtual ETRs, every transaction will be documented and recorded in real time, leaving no room for manipulation or tax avoidance.
Addressing Concerns and Ensuring Compliance
Kuria acknowledged that this new initiative may face resistance from some business owners, especially those who have been able to avoid paying taxes in the past. “I know there will be some noise, but there will be nowhere to hide for anybody,” he said, emphasizing the government’s determination to implement the new system regardless of opposition.
The virtual ETR system is designed to be a more efficient and transparent way of monitoring business transactions, reducing the chances of tax evasion. By tracking every payment made through mobile money, the government will have a clearer picture of business revenues, ensuring that all sectors contribute to the country’s tax base.
Benefits of the Virtual ETR System
The move to virtual ETRs is expected to bring several benefits:
- Increased Revenue Collection: By integrating mobile money transactions into the tax system, the government will be able to capture revenue that previously went unreported, significantly boosting tax collection.
- Fairness and Equity: The initiative aims to create a level playing field, ensuring that all businesses, regardless of size, comply with tax laws. This will promote fairness across all sectors of the economy.
- Improved Tax Compliance: The introduction of virtual ETRs will make it easier for businesses to comply with tax regulations, as all transactions will be automatically recorded. This reduces the likelihood of intentional or unintentional tax evasion.
- Enhanced Monitoring Capabilities: The virtual ETR system will allow the KRA to track transactions in real time, giving them greater insight into business operations and making it easier to identify discrepancies in tax payments.
The Kenyan government’s plan to convert mobile money paybill and till numbers into virtual ETRs marks a significant step toward improving tax compliance and closing loopholes in the tax system. By partnering with mobile operators and focusing on large-scale businesses initially, the government aims to ensure a fair and transparent tax process. This initiative is expected to increase revenue collection, improve compliance, and create a more equitable tax environment across the country.
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