Tax administration authorities can tighten noose on tax compliance if they go fully tech.
By JOB KABOCHI, CORAZON ONGORO AND JUSTA MURIUKI
According to Paying Taxes 2019, a global joint report by PricewaterhouseCoopers (PwC) and the World Bank Group, the increased use of technology by revenue authorities around the world has made the administration and collection of taxes easier. However, the publication points out that whilst various jurisdictions are already reaping the benefits of technology, there is still greater potential to be unlocked. The fundamental principles of a good tax system include, among other things, efficiency, flexibility, certainty and simplicity. The simpler a tax system is, the easier it is to digitise, as indicated in the report.
Big data to drive tax systems
The ever-increasing availability of large, diverse and complex data sets (big data) presents both opportunities and challenges for many tax administrations that wish to implement good tax systems. However, technology used by both tax administrations and taxpayers makes it easier to effectively analyse and consolidate data for tax filings as well as for valuable insights on tax collection/payment. It is against this backdrop that the Kenya Revenue Authority (KRA) has sought to leverage technology to become a data and intelligence driven organisation as part of its efforts to achieve a top 50 positions in the Paying Taxes ranking. Kenya currently holds position 91. The KRA is essentially an administration in technological transition characterised by partially digitised systems; for instance, there is a level of automation in tax return preparation, electronic payments, and the rollout of new technology infrastructure is on an upward trajectory. However, a high level of human intervention is still required in various interactions with the KRA as not all services and processes are available online. For instance, the process of obtaining tax refunds requires numerous correspondences and meetings with KRA officers.
Case in point
The iTax portal, introduced by the KRA in 2014, supports filing of returns and payment of taxes. The portal allows for electronic generation of documents such as withholding tax certificates, Personal Identification Numbers (PINs) and tax compliance certificates. In addition, taxpayers can apply for and process other tax related services such as tax refunds on the platform. Additionally, the KRA uses the iTax portal to communicate to taxpayers on matters related to tax assessments and tax refund decisions, among other things.
Most recently, KRA has employed the use of data analytics to match input tax credits claimed by buyers of taxable goods and/or services to corresponding output tax charged by the sellers of the goods and/or services.
Through a Value Added Tax (VAT) Auto Assessment (VAA) module on iTax, the Authority has sought to curtail fraudulent claims of VAT on one hand, and non-declaration of tax charged on the other. Other notable advances include the implementation of the Integrated Customs Management System (iCMS) and the proposed introduction of the Tax Invoice Management System (TIMS). iCMS is expected to phase out SIMBA, the customs clearance system which KRA has used for more than a decade. iCMS employs modern technology to consolidate existing Customs sub-systems into one and automate manual and semi-manual processes leading to more efficient and faster clearance of goods. On the other hand, TIMS is an enhancement to the existing Electronic Tax Register (ETR) regime.
Upon implementation, it will facilitate automatic reporting of transactions involving tax invoices to KRA, which will ultimately lead to further enhancements in the reporting of transactional taxes such as VAT and withholding taxes. The revenue authority also expects this system to ease the VAT refund process as verification of VAT charged by the supplier of goods/services versus the VAT incurred by the recipient of the goods/services will be done on a real-time basis.
Leveraging on technology
In our view, the capabilities of KRA’s current technological investments are yet to be exhausted. KRA could use data analytics to segment taxpayers for customised interactions and to obtain insights into risk profiles for more effective tax audits. Further improvements could include provision of e-learn modules and more advanced pre-filing and post-filing interactions e.g., early warning systems and progress notifications. Such advancements would benefit taxpayers by increasing awareness, which in our view will lead to increased voluntary compliance. KRA should also invest in higher-speed, wider-spread IT infrastructure which would reduce the frequent downtime of the iTax portal and other systems. By leveraging technology, the Authority will improve efficiencies in tax collection, cover a wider tax base, reduce tax fraud, increase tax collection, create a collaborative environment between the revenue authority and taxpayers, and improve its risk profiling for its taxpayer audits.
The above said, the need for appropriate legislation in a data driven society cannot be overemphasized—legislators should put in place relevant laws to address data collection, use, storage and protection, without which KRA’s initiatives, no matter how noble, are bound to experience headwinds.
Job Kabochi is a Partner/Director, Corazon Ongoro is a Senior Associate and Justa Muriuki is an Associate all working with PwC Kenya.