Recently at a petrol station in Nairobi, I chanced on a conversation between two guys regarding the Kenya Revenue Authority PIN (Personal Identification Number). This has become a crucial document for individuals and companies particularly when they need to transact. It is so important that it has even become part of the Know-Your-Customer (KYC) requirements for financial service providers, whether opening an account or updating existing details.
Well, according to one of the guys in the conversation, holding a KRA PIN means opening the floodgates of deductions by the taxman and you’re therefore better off without it. In fact, according to him, the deductions start right from the point of registration where you would be set back no less than Sh150 — and this meant he’d have to clean at least two cars to foot this cost before making anything for himself; notwithstanding the presumed successive deductions.
This got me pondering the depth of misinformation on various issues in the public domain, especially regarding a topic such as taxation. In this case, the KRA definitely has its work cut out to properly educate the masses about some of its services and systems.
Recently, a key area of concern for the manufacturing sector has been the expansion of the Excisable Goods Management System (EGMS) to cover non-alcoholic beverages. According to the Authority’s Commissioner for Domestic Taxes Elizabeth Meyo, this expansion entails the introduction of digital tax stamps on soda, juices and bottled water at the time of manufacture or importation so that they can be verified and traced whenever and wherever they are found in the Kenyan market. Put simply, the EGMS is a technology that allows the KRA to monitor and verify the source, volumes and authenticity of these goods within the country, thereby aiding the process of enforcing fair taxation. Excisable goods and services are outlined in the Excise Duty Act 2015 and are to a large extent luxury products. They include products such as tobacco, spirits, wine, beer, soda, juices and bottled water and services such as mobile phone subscriptions, mobile money transfers and banking services.
Given the revenue shortfalls that the country has been experiencing in recent years, the taxman has had to look for innovative ways to widen the tax base and close the existing loopholes. The EGMS certainly fits the bill as a highly effective tool to address these issues.
So, why has there been so much resistance to the EGMS despite the obvious benefits to the overall economy? As in our petrol station scenario, could it be a case of misinformation, half-truths or even disinformation? Whilst the system has already been running successfully in the tobacco, spirits, beer, wine and ready to drink alcohol industries for a number of years with tangible results, misinformation has been peddled even as the extension of EGMS to cover non-alcoholic beverages is taking place.
A major concern has been that the system will raise the cost of doing business through higher capital expenditure and operational costs, which would then result in higher costs of goods and therefore burden consumers. Nothing could be further from the truth. According to KRA, the stamp price for the newly-covered products were reviewed downwards from Sh1.50 to 50 cents for bottled water and 60 cents for soda and juice irrespective of the volume of the beverage.
If you add on the impact of the adjusted excise tax, the difference between the old tax of Sh1.50 and new tax of Sh1.56 for a 300ml bottle will be 6 cents. This means that the total additional official burden on a 300ml bottle would be Sh 0.56 (56 cents). A 56 cents per bottle increase is therefore a minor cost increment that can hardly cause ‘skyrocketing prices’, making any price adjustments above these figures unjustified.
Additionally, the main costS of installation are not borne by the manufacturers but by KRA’s technology provider. All EGMS equipment is delivered and installed by the provider and is not charged to the manufacturer. The manufacturer is asked to make modifications to their factory to support the implementation of the system, when necessary, just as they would have to do if any other system were installed at their premises.
In most cases, the changes are relatively straightforward – the provision of a dedicated internet connection as well as network cabling within the factory to enable production data to be sent from the factory lines to Times Tower.
From a taxpayer point of view, resistance to a system such as EGMS looks like a ploy by a subset of industry players to avoid greater transparency so that they can continue evading tax through under-declaration.
Looking at our government budget shortfalls, such evasion has gone far too long and such a status quo should not be allowed to continue. Tax cheats must be unmasked and brought into the tax net if we are to level out the tax payment field.
With the EGMS fully operational, I imagine a cleaned-up business environment where genuine manufacturers and importers can carry on their activities knowing there’s equity in taxation and that they are guarded against unfair competition from illicit goods.
It would be even more reprieve to know that the taxman would be collecting more revenues which would put the government in a healthier position to offer essential public services as well as effectively reduce government borrowing, which most Kenyans seem to be against.
Put simply, the tax burden should ease without even having to introduce new or higher taxes. This will only happen if everybody is meeting their fair share of tax obligations.
James Waithaka is a Communications Specialist