The Kenyan government has shelved its ambitious plan to integrate all M-Pesa paybill numbers into electronic tax registers (ETRs), opting instead to concentrate on turnover tax collection from small businesses and enforcing rental income compliance among landlords.

This move reflects a recalibrated approach by the Kenya Revenue Authority (KRA) to broaden the tax base while addressing technical challenges in digitizing tax collection.

Initially, the government’s strategy was to link all mobile money transactions directly to KRA’s real-time tax systems, targeting businesses with annual sales exceeding Sh5 million.

With over 2 million businesses using M-Pesa paybill services but only 200,000 registered for ETRs, this plan was seen as a critical measure to curb tax evasion. However, logistical challenges and stakeholder concerns have delayed implementation.

“KRA is still committed to leveraging technology to simplify tax compliance and enhance efficiency in tax administration. Among the prioritised initiatives is the integration of digital payment platforms into the virtual ETR system,” KRA is quoted in the local media.

Introduced in 2007, turnover tax aims to enhance compliance among small enterprises, many of which operate informally and contribute minimally to national revenue.

Peter Kamau, a small shop owner in Nairobi’s Eastleigh area, expressed mixed feelings about the renewed focus. “The tax is fair because it’s based on our income, but many small businesses don’t have proper records, so we end up overestimating or underestimating what we owe. KRA needs to offer more training on compliance,” he said.

KRA has intensified outreach to educate small business owners on the importance of maintaining accurate financial records. The agency has also deployed field officers to conduct audits and encourage voluntary registration for turnover tax.

Landlords are in the spotlight as the government steps up efforts to collect rental income tax. Leveraging data-sharing agreements with utility companies and digital platforms, with KRA identifying property owners who have evaded tax obligations. According to the agency, this initiative will help close revenue gaps caused by widespread non-compliance in the real estate sector.

Lucy Wanjiru, a landlord in Nairobi’s Umoja estate, recounted her experience with KRA’s renewed enforcement efforts. “I received a notice last year asking me to declare my rental income and pay outstanding taxes. At first, I was worried about penalties, but KRA’s officers helped me understand the process, and I’ve now regularized my payments. It’s a relief to be compliant,” she said.

While the delay in digitising M-Pesa tax systems might appear as a setback, experts argue it allows KRA to fine-tune its approach. A phased rollout, accompanied by stakeholder consultations, is expected to minimise disruptions for businesses relying on mobile money platforms. This strategy also gives the government time to address gaps in infrastructure and streamline its systems for better integration.

“KRA’s focus on turnover tax and rental income compliance is a step in the right direction. It’s essential to broaden the tax base while ensuring that compliance measures are not overly punitive or disruptive,” said John Mwangi, a tax expert with a Nairobi-based consultancy. As the government grapples with fiscal pressures, businesses and landlords should brace for stricter enforcement of existing tax measures. KRA has ramped up partnerships with mobile money operators to track transactions, ensuring that even informal businesses are brought into the tax net.

The Central Bank of Kenya estimates that informal businesses contribute nearly 33 per cent of the country’s GDP but account for a disproportionately small share of tax revenues. By targeting this segment, the government hopes to raise its revenue collection without imposing additional burdens on formal businesses already complying with tax laws.

Despite the temporary shift in focus, the government remains committed to its long-term vision of digitising tax collection. This includes integrating mobile money transactions into the virtual ETR system and using advanced analytics to monitor compliance. Experts believe that once implemented, this initiative could revolutionize revenue collection in Kenya by leveraging the country’s robust mobile money infrastructure.

For now, the government is laying the groundwork by strengthening compliance in the informal sector. “The eventual success of these initiatives hinges on building trust between KRA and taxpayers. Simplifying processes and offering incentives for voluntary compliance will be key,” Mwangi noted.