The Kenya Revenue Authority (KRA) has raised concerns over a notable surge in business owners reverting to cash transactions, abandoning mobile merchant payment accounts. This shift in payment methods follows the KRA’s recent intensification of compliance checks in major towns over the past month.
The tax authority has observed a significant trend in which businesses, previously reliant on Lipa Na M-Pesa Buy Goods Till numbers to receive payments, are now urging their customers to make cash payments.
This shift in behavior by businesses comes on the heels of the KRA’s deployment of approximately 1,400 revenue service assistants equipped with paramilitary training. Their primary mission is to bolster tax compliance among traders, a role that includes facilitating online business registration.
Caroline Rotich, Chief Manager of the Domestic Taxes Department at KRA, acknowledged the changing landscape, saying, “It is already noted that [closure of Lipa Na M-Pesa merchant accounts] is what is happening in the market. We are working on strategies on how we can work around this.”
KRA efforts to combat tax evasion
In response to this trend, the KRA has announced its intention to seek information from Safaricom, the telecommunications company behind M-Pesa, regarding merchants who have opted out of the M-Pesa Buy Goods and Pochi La Biashara tills.
This move is part of the KRA’s efforts to combat tax evasion effectively.
Safaricom’s Lipa Na M-Pesa Buy Goods Till has been popular among small-scale traders, enabling them to collect payments and use the same funds to cover various expenses, including wages and commissions.
Pochi La Biashara, on the other hand, is tailored for the registration of informal business owners, such as food vendors, kiosk operators, boda boda riders, and second-hand clothing dealers. This service allows them to separate business funds from personal finances within their M-Pesa accounts.
Ms. Rotich emphasized the importance of collaboration with Safaricom, stating, “Working together with Safaricom to facilitate with integration, we will get information on these drop-outs so that from there we can do follow-ups and compliance checks.”
The KRA has also increased its enforcement efforts, with numerous officers conducting compliance checks in major towns. This proactive approach is aimed at addressing tax compliance issues arising from the growing use of cash transactions in place of mobile payments.
Small traders with annual sales revenues ranging from KES 1 million to KES 25 million are now required to pay a 3% turnover tax, a change from the previous 1% tax on sales between KES 1 million and KES 50 million.
To achieve its target of nearly KES 2.5 trillion in exchequer revenues for the current fiscal year ending in June 2024, the KRA is relying on increased utilization of third-party data.
This further includes partnering with banks and mobile money platforms like M-Pesa to monitor taxpayer activities effectively.
