The government has revealed a new policy that will classify all digital payment systems as virtual electronic tax receipts (ETR) systems effective December 25, 2024.
This means services like M-PESA, bank PayBills, till numbers, and other merchant payment systems will be recognized as ETR systems.
Moses Kuria, Senior Economic Advisor to President William Ruto, said Kenya’s robust digital payments ecosystem and encouraged stakeholders to communicate the forthcoming changes to users.
“Please whisper to them that come Christmas 2024, all pay bills will also be virtual ETRs for purposes of KRA,” he said.
Kuria expressed concern regarding the low registration of ETR devices, which currently stands at merely 200,000, indicating a minimal portion of the possible user base.
He highlighted the significant gap between digital payment methods, such as banking and mobile money, and the extensive number of active users.
Kuria perceives this new policy as an opportunity for the government to increase revenue collection from the working class.
“Combined, all our telcos and the banks who are doing mobile money , we’ve got, you know, what we call digital touchpoints for payments, two million of them. Ten times the ETRs we have at KRA. That just speaks to the huge, huge opportunity that Kenya has to even have what I would call the early harvest,” he added.
The recent development indicates that mobile money payments will now be considered equivalent to eTIMS receipts, making them eligible for income tax deductions.
Safaricom reported having 633,000 active Lipa Na M-PESA merchants in its latest financial results while Equity Group asserts that it has over 1.1 million Pay with Equity merchants and 30,000 POS merchants across the six countries where it operates.
“I just speak on one area of taxes, the income taxes. In Kenya we have got, you know, a very funny, very weird structure of the workforce.
“People in the formal sector, both in public sector and the private sector, we have got 3 million people within the formal sector. Within the informal sector, we’ve got 16 million,” Kuria stated.
Kuria asserts that although the formal sector consists of merely 3 million taxpayers, it generates a considerable Ksh 500 billion in income tax revenue.
In comparison, the informal sector, which encompasses 16 million individuals, contributes only Ksh 12 billion.
Kuria views this imbalance as not just an economic concern but as a complex issue with profound socioeconomic, ethical and equity ramifications.
“How can 3 million people disproportionately carry the burden on behalf of 16 million people who are virtually not contributing in terms of income taxes?” he asked.
