Large tax payers face fresh audits on VAT

Treasury secretary Henry Rotich. Photo/FILE  NATION MEDIA GROUP

In Summary

• KRA is set to intensify the audit of large tax payers with focus on Value Added Tax compliance, Treasury secretary Henry Rotich has told the International Monetary Fund
• Treasury said detailed audit will be done especially on the 50 largest tax payers, long suspected of evasion of the VAT that grew by only 0.65 per cent in the April to June period compared to the same time in the previous year, yet nearly all other tax categories expanded by double digits

Kenya Revenue Authority (KRA) is set to intensify the audit of large tax payers with focus on Value Added Tax compliance, Treasury secretary Henry Rotich has told the International Monetary Fund.

The pledge is made in a letter dated November 15, when the Treasury was seeking to have the IMF release Sh9.5 billion being the last tranche of a three-year Sh34.5 billion ($750 million) credit facility.

“We have intensified the auditing of large tax payers, broadened coverage of excise taxes and streamlined customs services,” said Mr Rotich in the letter that was also signed by Central Bank of Kenya (CBK) governor Njuguna Ndung’u.

The Treasury said detailed audit will be done especially on the 50 largest tax payers, long suspected of evasion of the VAT that grew by only 0.65 per cent in the April to June period compared to the same time in the previous year, yet nearly all other tax categories expanded by double digits.

Mr Rotich said in the letter that the recently enacted VAT law would contribute to administrative efficiency and more revenue collection.

“We recognise that the recent (2012/13) revenue shortfalls resulting from gaps in VAT administration for large tax payers have placed constraints on pro-poor and pro-growth spending,” said the Treasury secretary.

KRA has also been keen to follow on the issue of transfer pricing of multinationals, many of which are grouped as large taxpayers.

KRA Commissioner-General John Njiraini said a few months ago that the organisation had collected Sh4 billion extra after a crackdown and audit of multinationals for tax evasion.

Overall tax collection improved in the first three months of this financial year, even exceeding set targets, which has given the Treasury confidence that the year will turn out better than the previous one, especially due to the use of technology.

“There are already signs that point to stronger collections so far in 2013/14. A user-friendly taxpayer interface, the integrated tax management system also called itax, will be fully rolled out,” said Mr Rotich.

He added that the project to implement remote transmission of Electronic Tax Register (ETR) data would commence by year-end.

“Amendments to the Income Tax Act to broaden its base to capital gains and intensify efforts to collect rental income tax should translate into better revenue mobilisation,” said Mr Rotich.

A major reason for improving on tax collection is to lessen domestic borrowing which increases public debt.

Mr Rotich told the IMF that Kenya still faces the risk of external shocks, such as the collapse of the shilling in 2011 that prompted signing of the foreign exchange support loan.

The Treasury secretary is also keen to secure extra cash from donors to finance the numerous infrastructure projects factored in Kenya’s medium-term development plans.