KRA’s New System To Monitor Government Suppliers In Tax Evasion Crackdown

The Kenya Revenue Authority (KRA) is rolling out a sophisticated digital surveillance system aimed at ‘tenderprenuers’ and government suppliers who have been evading taxes despite earning billions through public procurement.

In what could mark a turning point in the fight against tax evasion, the tax agency has completed the integration of its tax collection system with critical government financial platforms, giving it unprecedented visibility into state payments and procurement transactions.

Real-Time Tracking of Government Payments

According to reports, the KRA has successfully linked its iTax system with the Integrated Financial Management System (Ifmis), the Government Human Resource Management Information System (GHRIS), and the Central Bank System.

“The integration is more or less as good as done. In the next couple of weeks, this will be rolled out,” confirmed Rispah Simiyu, KRA Commissioner for Large and Medium Taxpayers.

This technological advancement enables the tax authority to conduct real-time reconciliation of public sector-related payments made through the Central Bank of Kenya, eliminating the need for backend reconciliation that previously created loopholes for tax evasion.

How ‘Tenderprenuers’ Have Been Evading Taxes

Kenya Insights investigation reveals that government suppliers have been using sophisticated methods to evade taxes, including:

1. Creating fake invoices to inflate costs and reduce taxable income
2. Filing nil returns despite earning substantial amounts from government contracts
3. Under-declaring income from national and county government tenders

A significant number of suppliers have been receiving payments through the government procurement system while simultaneously maintaining minimal tax footprints, costing the Treasury billions in revenue.

Data-Driven Enforcement Approach

The new system marks a shift toward technology-driven tax enforcement. Beyond the integration with government procurement systems, the KRA is leveraging multiple databases to identify potential tax cheats, including:

– Bank statements
– Import records
– Motor vehicle registration details
– Kenya Power records
– Water bills
– Kenya Civil Aviation Authority data

This multi-pronged approach allows the KRA to create comprehensive taxpayer profiles, particularly targeting high-net-worth individuals and companies with substantial government business but minimal tax contributions.

Boosting Public Sector Tax Compliance

The public sector contributed Sh99.24 billion in taxes in the year ending June 2024.

However, the KRA believes significant revenue leakages still exist within the government procurement ecosystem.

A 2021 review uncovered an additional 230,935 workers earning above Sh100,000 monthly who were previously unaccounted for in official data, suggesting widespread under-declaration of payrolls by employers.

The integration with GHRIS will specifically target this problem by giving KRA complete visibility into civil servants’ full compensation packages, including allowances and benefits that might have escaped taxation.

The enhanced tax collection measures come as part of Kenya’s broader fiscal consolidation strategy aimed at reducing public debt while maintaining economic growth.

With over half of tax revenue currently going toward debt repayment, the government is under pressure to maximize domestic resource mobilization.

The KRA has been tasked with collecting Sh2.54 trillion in the current financial year, having already collected Sh1.624 trillion in the eight months to February.

Industry Reaction

Tax experts and business leaders have expressed mixed reactions to the new system. While some applaud the efforts to create a level playing field by ensuring everyone pays their fair share, others worry about potential overreach.

“This kind of integration makes sense, but the KRA must ensure that legitimate businesses don’t get caught in an overzealous enforcement dragnet,” said a prominent tax consultant who requested anonymity.

Treasury’s plans are underway to further extend the KRA’s digital reach by integrating its systems with mobile financial platforms such as M-Pesa and commercial banks, creating an even more comprehensive tax surveillance network.

For Kenya’s ‘tenderprenuers’ who have long operated in the shadows of tax compliance, the message is clear: the days of earning from government contracts while evading tax obligations are rapidly coming to an end.