Kenya cannot afford high taxes. They stifle growth, reduce investment and discourage business. But he can’t pay his growing debt either. The government therefore plans to create a larger tax net, wide enough to tax mobile money payments.

Kenya’s new administration presented its first budget last week. It is the biggest budget proposal since 2011. To fund the KES 3.6 trillion ($29 billion) budget, the government wants to increase tax revenue and reduce borrowing. According to the National Treasury, President Willam Ruto’s administration plans to increase tax collection to 3 trillion KES shillings ($24.2 billion) to fund government spending plans.

To meet its ambitious revenue targets, Ruto’s administration wants its revenue service, the Kenya Revenue Authority, to monitor digital payments made through M-pesa and other mobile money services. By monitoring digital payments made on MPESA and other mobile money services, the government hopes to widen the tax net.

M-Pesa, the mobile money platform operated by Kenya’s largest telecom operator, Safaricom, accounts for 99.9% of mobile money payments made in Kenya, according to the Central Bank of Kenya. Between March 2021 and 2022, M-Pesa users made payments worth more than KES 11 ($88 billion), with the bulk of these transactions (87.5%) occurring through payments between peers. An additional 12.5% ​​of payment transactions were made through the PayBill M-Pesa merchant payment function.

“As part of the economic recovery plan, the government will step up revenue collection efforts from the Kenya Revenue Authority (KRA) to Kshs 3 trillion in the financial year 2023/24 and Shs 4 trillion in medium term,” the Treasury said in the statement. draft budget statement released last Wednesday.

The plan to link mobile money systems to the tax office computer may come as a surprise to some. But this is not the first time that the tax office’s computer has been integrated into the systems of service providers. In October last year, the Kenya Revenue Authority began monitoring transactions in the betting industry in Kenya. It now collects a 7.5% excise tax and a 20% withholding tax on player winnings.

The draft budget for 2023 also reintroduces the controversial turnover tax. First introduced in 2020, the tax proposal would have seen taxpayers pay taxes on their gross turnover whether the company reported a loss or made a profit.

The proposal to “spy” on mobile money transactions has drawn the most ire from Kenyans. Some believe the move, if it materializes, could force people to use more cash.

According to Samuel Inchwara, a Nairobi resident and tech worker, “We have come a long way as a country and are proud to be one of the first countries to drive the adoption of mobile money which has propelled the financial inclusion. But now, with the new proposal of the Kenya Revenue Authority (KRA) monitoring our transactions, it only means that we are now back to the cash economy.

Allowing the KRA to access Safaricom’s M-Pesa user data could breach privacy rules under Kenya’s Data Protection Act 2019. Kenya’s Data Protection Commissioner, Immaculate Kassez, said that the rules on the processing of personal data applied to both governmental and private organisations. “Government institutions believe that data protection law is reserved for the private sector. The law applies to all organizations. In the past, multilateral institutions have required government institutions to comply with the DPA before accessing funding,” she wrote on LinkedIn.

Kassé and the KRA did not respond to media questions about a potential breach of confidentiality rules at the time of publication.

Tracking transactional data on popular mobile money systems in order to tax the informal sector is a big undertaking. And one that may not be popular with Ruto’s politics scammer base. The irony is that this seems like a price the president is willing to pay to keep the flowery promises he made in the 2022 election.

It also raises the question: is digital financial inclusion a cover for governments to collect tax revenue from the lowest incomes?

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