M-Pesa paybills to become KRA tax registers by December 25
The government has announced a renewed crackdown on businesses, aiming to target tax evaders by using mobile money paybills and till numbers, following the failure of the eTIMS system to address the issue.
According to a plan revealed by Moses Kuria, the President’s senior economic adviser, the government intends to transform paybill and till numbers into electronic tax registers (ETRs) by December 25 in an effort to catch those avoiding taxes.
This decision comes after more than three-quarters of registered companies ignored the Kenya Revenue Authority’s (KRA) electronic tax invoice management system (eTIMS) during its first year, hampering efforts to boost compliance and curb tax evasion.
KRA data shows that only 120,000 registered business taxpayers signed up for eTIMS by June 2024, representing just 18.1% of the 663,000 firms in their records. Additionally, more than half of the businesses that did sign up are not using the system, highlighting the government’s challenges in expanding the tax base.
Under the new plan, mobile money paybills will serve as KRA tax registers, which will place a large number of businesses under closer scrutiny by tax authorities.
Moses Kuria stated, “We’ve agreed with the Commissioner-General that by Christmas 2024, all paybills will function as virtual ETRs for tax collection. I know there will be pushback, but tell me where we agreed that someone should avoid paying taxes? There will be nowhere to hide.”
This initiative specifically targets traders who use mobile money platforms like M-Pesa, T-Kash, and Airtel Money but are not yet part of the current tax system.
For example, Safaricom’s 2023 annual report showed a 23.1% rise in the use of Lipa Na Mpesa merchants, reaching 602,662 merchants. This led to customer-to-merchant payments on Safaricom’s platform increasing to Sh1.38 trillion. Airtel recorded Sh1.67 billion, while T-kash saw Sh86.30 million, bringing the combined total to just over Sh1.4 trillion. Experts suggest that the government’s push to utilize mobile money paybills as tax registers is driven by the slow adoption of eTIMS.
Data analyst Mihir Thakar pointed out that this shift to using paybills for electronic transactions is a response to the challenges in eTIMS migration. “Many traders haven’t switched to the electronic tax system, creating a gap in compliance since only eTIMS, TIMS, or payroll-generated expenses will qualify for tax-deductible purchases when determining taxable profit,” said Thakar. He added that the change is designed to simplify expense claims for compliant businesses, though non-compliant traders may distrust the system and turn to cash transactions instead.
Kuria, previously a Cabinet Secretary, reiterated that all paybills will act as virtual ETRs, focusing first on businesses with annual sales exceeding Sh5 million. Currently, of the two million companies using mobile paybill services, only about 200,000 have registered physical ETRs, representing a significant untapped revenue source.
President William Ruto has previously emphasized that the large number of mobile money users presents a prime opportunity to improve tax collection. The Kenya Revenue Authority (KRA) is already working to integrate its systems with mobile operators to target income tax evaders.
This push comes as the government faces increased pressure to raise funds after abandoning several tax measures in the Finance Bill 2024, following public protests. Soon, mobile money transactions will be treated similarly to the electronic tax invoice system (eTIMS), simplifying the tracking of sales and tax calculations.