Kenya to modernize tax systems to enhance compliance

The government is targeting to commence overhaul of some of tax collection systems to combat tax evasion and enhance compliance.

Through the medium term revenue strategy, treasury is targeting to modernize tax systems among them, the Integrated Customs Management System and iTax system.

Speaking during the Kenya Revenue Authority Summit, Prime Cabinet Secretary Musalia Mudavadi said tax administrations must proactively adopt technology-driven solutions and systems that facilitate trade and improve domestic resource mobilization.

“Innovation, from digital taxation platforms that simplify compliance to block chain technologies that enhance transparency in trade logistics, offers powerful tools for revenue generation and efficient trade management,” said Mudavadi.

According to National Treasury and Economic Planning John Mbadi, the government is committed to implementing both tax administration and tax policy measures to raise additional revenue in order to reduce fiscal deficit to 3pc and achieve a balanced budget by FY2027/2028.

“If you look at VAT, we have the potential to collect 6pc of GDP as VAT but we are collecting only 3.8pc because tax visibility is a challenge. We are developing a system which must enhance tax visibility. Rental income tax, we are only collecting Ksh 17 billion per year yet we have the potential of collecting Ksh 100 billion per year,”

The authority is also seeking to adopt modern technologies such as Artificial Intelligence and Machine Learning in their tax administration process to further boost collection.

“AI and machine learning will enhance vast data sets to identify tax evasion patterns, optimize resource allocation and predict future revenue streams. By leveraging these technologies, authorities can better understand taxpayer behaviour, personalize outreach to taxpayers and implement data driven policies that promote voluntary compliance,” said Humphrey Wattanga, KRA Commissioner General.

This comes as treasury mulls increasing KRA budget by at least 30pc in the FY2025/24 to intensify their revenue collection efforts. Mbadi has also directed KRA board to begin the process of filling key positions with staff in an acting capacity.