The Kenya Revenue Authority (KRA) is facing a daunting challenge in collecting tax revenues from foreign firms contracted to undertake public infrastructure projects, with the issue being exacerbated by the increasing use of cryptocurrencies for cross-border transactions. ### The Weaknesses in Implementing Laws
* The report by the Auditor General found that the KRA lacks mechanisms to track many foreign firms operating in the country. * The lack of cooperation among government agencies has hindered efforts to tackle illicit financial flows (IFFs). * Insufficient penalties for offenders have allowed them to continue engaging in such practices. ### Limited Cooperation Among Government Agencies
* The report noted that different government agencies, including the Immigration Department, fail to share information, making it difficult to block IFFs. * The Immigration Department maintains a register of all foreign nationals, but this information is not shared with tax authorities. ### The Rise of Cryptocurrencies
* The emergence of cryptocurrencies has complicated Africa’s fight against IFFs due to their decentralization and anonymity. * Firms and individuals are increasingly using cryptocurrencies to move funds across borders, making it harder for tax authorities to track transactions.
Key Findings from the Audit Report
* The audit found that foreign firms operating in Kenya tend to pay their employees in their home countries, blocking KRA from viewing details of such payments. * There is no collection system in place to pursue taxpayers beyond Kenya’s borders where taxes have not been declared and paid in full. * An examination of tax returns and self-declarations by taxpayers revealed that some foreign entities operating in the country paid their employees in their countries of origin without subjecting these salaries to Kenyan tax regulations.
Expert Opinion
* The Auditor General noted that laws regulating and supervising sectors considered fertile ground for IFFs are inadequate. * The sectors include real estate agencies, money remittance providers, money network operators, savings and credit cooperatives, casinos, the legal sector, and car dealerships, as well as non-profit organisations. * Cryptocurrencies have complicated Africa’s fight against IFFs and could further aggravate the losses that the continent incurs.
Conclusion
The report highlights the need for improved mechanisms to track foreign firms operating in Kenya and the importance of cooperation among government agencies to tackle illicit financial flows. The emergence of cryptocurrencies poses a significant challenge to this effort, and it is essential that the KRA and other relevant authorities take proactive steps to address this issue. The country’s loss of billions of shillings in tax revenues due to IFFs must be addressed through improved legislation and enforcement.
| Recommendations | Actions |
|---|---|
| Establish a more comprehensive system to track foreign firms operating in Kenya. | Implement a new tax collection mechanism that can pursue taxpayers beyond Kenya’s borders. |
| Enhance cooperation among government agencies to share information and block IFFs. | Develop a framework for the sharing of information among agencies, including the Immigration Department. |
| Develop legislation to regulate and supervise sectors considered fertile ground for IFFs. | Introduce new regulations and guidelines for these sectors, including real estate agencies, money remittance providers, and cryptocurrencies. |
Key Definitions
* **Illicit Financial Flows (IFFs):** The transfer of funds from a country to another without proper tax payment or for the purpose of concealing the true source of the funds. * **Cryptocurrencies:** Digital currencies that use cryptography for security and are decentralized, making them anonymous and difficult to track. * **Tax Evasion:** The deliberate and unauthorized reduction of tax payments or the failure to pay taxes owed to the government.