Safaricom rejects KRA bid for free access to taxpayers M-Pesa accounts

Safaricom chief executive Bob Collymore (left) and KRA Commissioner General John Njiraini. Safaricom said it will not give the KRA customer data unless laws touching on confidentiality are changed to allow the mining of such information. PHOTO | FILE 

By OTIATO GUGUYU and MUGAMBI MUTEGI

In Summary

• Treasury secretary Henry Rotich has, through the Finance Bill 2016, amended a section of the Tax Procedures Act (TPA), laying the ground for KRA’s wish to be granted.
• Mr Njiraini said at the time that a partnership was underway with Safaricom and Equity Bank to reduce tax evasion, but the mobile operator has now denounced the existence of such a deal.

Telecoms operator Safaricom has rejected the taxman’s quest to gain unfettered access to its customers’ mobile money records, throwing a big hurdle at the Treasury-backed plan meant to smoke out tax cheats.

Safaricom said it will not give the Kenya Revenue Authority (KRA) customer data unless laws touching on confidentiality are changed to allow the mining of such information.

The KRA is seeking to gain unrestricted access to taxpayers’ bank and mobile money accounts as part of the efforts to catch tax cheats and improve revenue collection as its targets continue to rise.

“As you are aware, the Constitution of Kenya restricts access to confidential customer information,” Stephen Chege, Safaricom’s corporate affairs director, told the Business Daily in an email response.

“Other laws such as the National Payment Systems Act and the regulations thereunder — which govern M-Pesa — also restrict access to such information unless by a court order.”

Treasury secretary Henry Rotich has, through the Finance Bill 2016, amended a section of the Tax Procedures Act (TPA), laying the ground for KRA’s wish to be granted.

The taxman needed the law change to spare it the burden of having to seek court orders every time it wants to access an individual’s account but tax experts and lawyers have warned of fierce legal opposition to the invasion of people’s privacy.

The proposed law says “a person shall, upon being required to do so by the commissioner, furnish the commissioner with returns showing such information, in such form and manner and within such time as the commissioner may prescribe”. 

Companies and individuals tend to bank money they cannot spend, an indication of the surpluses in a person’s financial or business operations for which they are required to pay tax.

READ: KRA targets mobile money to smoke out tax cheats

Also read: Treasury targets to raise Sh4.5bn from money transfers

Most payments are also made through bank accounts, offering the taxman an opportunity to demand his share.

Currently, the taxman has to seek courts to gain access to an individual’s bank accounts, a long process that the KRA wanted removed to aid tax collection efforts.

KRA commissioner-general John Njiraini told the Business Daily in April that he expected some amendments to the law giving him direct access to bank accounts “for information about businesses and individuals on an ongoing basis”.

Denounced the existence

Mr Njiraini said at the time that a partnership was underway with Safaricom and Equity Bank to reduce tax evasion, but the mobile operator has now denounced the existence of such a deal.

Access to Safaricom’s M-Pesa transactions would give the taxman a treasure trove of financial information for use in tracking tax evaders. Safaricom had 16.6 million active customers in March with monthly person-to-business transaction of Sh24.1 billion.

Mobile money users transacted a total of Sh2.8 trillion last year, Sh504 billion more than the national budget.

Mr Chege said Safaricom does not have any information sharing arrangement with the KRA but fully supports the taxman’s effort to grow tax revenues. “Our support is hinged on adherence to the laws of the land,” he said.

Francis Kamau, a tax director at consultancy firm Ernst & Young, said the amendment, if indeed intended to give the KRA unfettered access, is likely to run into legal hurdles.

He said that although banks presently provide the KRA with information on their customers’ transactions, such disclosures are only possible under the provisions of the Income Tax Act and the Banking Act.

The two pieces of legislation give the taxman access to customers’ financial records held by banks but requires the KRA to obtain a court order (if the lender declines to oblige) or send a representative to look at the accounts without making any copies of the records.

“For the KRA to by-pass court orders, the Cabinet Secretary has to amend several laws. The new clause, as drafted, will definitely be challenged if the KRA relies on it to access information,” said Mr Kamau.

Robert Waruiru, an associate director with KPMG, said that lawyers too will fall back on their attorney-client privileges if asked to furnish the KRA with information, including financial and investments records.

Expatriates could also repel the taxman’s information-seeking efforts by relying on their home country’s data protection laws, some of which apply extra-terrestrially, Mr Waruiru said.

“What I see happening in case KRA attempts to implement this clause is that persons requested to give confidential information will throw the law back at them,” he said.

Allowing the KRA to access bank accounts could also make it unnecessary to levy taxes such as withholding value added tax (WHVAT) by major suppliers to big businesses, the government and related entities.

With the bank details, suppliers to a business and the government would be easily traced by following the money trail and  enabling the taxman to have an inside view of the entities that should be paying tax and how much they should pay.

But there are also high chances that it would encourage cash-based transactions and defeat the ongoing transformation of Kenya into a cashless economy.

Another danger is that such a law could promote parallel banking with the intention of hiding the proceeds of both legal and illegal incomes.