Revenue collector accused of ‘bully-boy’ scare tactics
Steve Umidha @UmidhaSteve
Kenya Revenue Authority (KRA) was yesterday accused of using scare-crow tactics, including writing ‘bullying’ letters to numerous taxpayers to establish why they do not meet their tax obligation.
The damning revelations come amid pressure by the tax agency to meet its collection targets which fell by Sh62.95 billion shortfall in the third quarter to September 2020 against a target of Sh288.08 billion.
It blamed the under-performance on employee layoffs by firms affected by Covid-19 disruptions.
Such sneaky and uncouth strategies by the taxman, experts say are likely to backfire in the long run and could damage the institution’s reputation if not well managed.
“It is a short-term measure by the agency and a contradictory one just after announcing Voluntary Tax Disclosure Programme.
What the agency is doing is illegal, uncouth and uncivilized and it is not a sustainable way to do it” commented Michael Mburugu, a partner at PKF, a regional body for accountants and business advisers.
Mburugu urged the revenue collector to reconsider its tactics and methods of “milking the cow”, arguing that if the trend by KRA is left to continue, it may lead to frequent litigations between the agency and taxpayers.
“KRA has been milking the cow so much, and it has been reduced to a police outfit. It has even lost its glory.
I can see a looming litigation in the future if this is left to continue,” he said in a telephone interview with People Daily.
Harassing calls
“Normally I’d receive harassing calls from their representatives asking why I had defaulted in remitting my taxes and sometimes they would go to an extent of making you commit to timelines in when you can pay, it is despicable and insensitive especially at this time when most Kenyans are out of work,” commented Silvester Wesonga, who runs a publishing firm in Nairobi.
Wesonga represents majority of Kenyans who continue to face the tax man’s mean tactics in demanding their share of revenues.
“I received such calls especially last year. I incurred penalties for not declaring my tax returns,” says Paul Arithi, a Nairobi resident.
KRA’s mean tactics have equally come under scrutiny at a time the agency is running a unique program aimed at having taxpayers voluntarily declare their taxes.
This also despite training 300 tax and customs professionals to help it boost collection.
KRA in January unveiled a Voluntary Tax Disclosure Programme that sought to waive penalties accrued for individuals who failed to disclose any tax that was due over the last five years, as long as they pay the principal amount this year.
The National Treasury, through the Finance Act 2020, introduced the measure that was meant to offer affected taxpayers relief on penalties and interest on any tax liability disclosed in respect to the five years running to June 2020 – but that is bizarrely not adhered to by the enforcing agency, KRA according to another tax expert, Samuel Mwaura.
“It is the taxpayer’s responsibility to pay taxes which are due and the majority of the taxpayers have complied, therefore it goes against the norm for the agency to introduce a voluntary disclosure programme then start intimidating taxpayers that they have information about under declared taxes,” says Samuel Mwaura, a tax partner at Grant Thornton.
Adding that such tactics have psychological impacts and panic-related disorders on taxpayers that are currently reeling from the effects of the coronavirus pandemic.
Churchill Ogutu, the Head of Research at Genghis Capital ltd, however wants the tax agency to increase its administrative controls if it is to meet its intended targets.
“It is the only way out and it also needs to have an honest conversation with the government who sets those targets,” said Ogutu.
While announcing such changes, KRA indicated that the government expected the programme would help enhance tax compliance as well as serve as a relief to taxpayers affected by the challenging economic times brought about by the global Covid-19 pandemic.
The programme applies to all tax liabilities such as Income Tax, Corporate Tax, Pay As You Earn, Withholding Income Tax, Capital Gains Tax, Value Added Tax, Withholding VAT, Excise Duty, Monthly Rental Income Tax and Turnover Tax.
Covid-19 containment measures last year saw firms scale down operating hours, which in turn hit their sales resulting in reduced earnings.
As a result, companies opted to control their operating costs by trimming their workforce, chopping salaries and effecting unpaid leave policies whose impacts are still felt in the New Year.
An estimated 287,481 Kenyans lost their jobs in the first three months of the year alone because of the pandemic disruptions, according to data by the Kenya National Bureau of Statistics (KNBS), with more layoffs taking place in the successive months as the effects of the pandemic continued to hit home.
Economic shocks
The slump in revenue receipts was worsened by tax reliefs offered by the Treasury from April to cushion businesses and workers from the economic shocks of Covid-19 pandemic, which experts also believe was never given sufficient time for the impact to be felt.
KRA had also at the beginning of the year announced a minimum rate tax of 1 per cent of the gross turnover effective which shall be payable by the 20th day of the 4th, 6th, 9th and 12th month of the accounting period.
KRA has been under pressure to meet its collection targets after consistently missing set goals set on its behalf by the National Treasury.
The agency missed its tax collection target by Sh186.3 billion between March and December last year.
It collected Sh1.09 trillion against a target of Sh1.28 trillion in eight months between March and November last year.
Over the last few months the government has heightened its tax collection as a conditional requirement by International Monetary Fund (IMF) if it is to be loaned Sh250billion credit facility.
IMF said in December 2020 said that such conditions were meant to reduce Kenya’s debt exposure with the country’s debt default now categorised as “high” by the IMF and the World Bank.
Kenya’s debt is expected to hit Sh8.4 trillion, which would push the ratio of debt to gross domestic product (GDP) to over 76 per cent. Experts believe the situation may be worse if economic forecasts are factored.
Treasury data shows that the agency missed its half year revenue targets by Sh88.3 billiom.
