Following the revelation by Moses Kuria that by December 25, 2024, the government will roll out a plan requiring small businesses to use paybills and tills as virtual electronic tax registers (ETRs), Chairman of the Council of Economic Advisors, Dr David Ndii has shed more light on how this new system will work.
Speaking during the NCBA Bank Economic Forum 2024 on Wednesday, Ndii explained the need for the new rollout and gave a detailed explanation of how paybills and tills will be used to expand the tax base.
Kuria revealed that every business transaction processed via these digital payment methods will automatically be recorded for taxation purposes.
So how will this exactly work, and how will the government be collecting taxes from the paybills and tills? According to Ndii, the Kenya Revenue Authority (KRA) will be using software that will attach the payment service providers with the paybill and till numbers to ensure that all these payments go into the system and are taxed.
"This is a digital ETR, a software that attaches the payment by the service providers and puts it on cash registers so that when I go to a shop, I pay by cash or by card it goes into the cash register and it has an ETR or if I pay by card, it goes into a cash register and it has an ETR," Ndii explained.
"But at the back of the cash registers, there is a pay bill number, for some businesses, it doesn't go into the same system, that is why this new approach is important," the economic advisor continued.
Ndii was confident that this new system would increase the tax base, especially since it is a method that the government has already tried, and according to him, has witnessed a tremendous increase.
"We know it works because we have tried it in government payments by doing single-pay bills for all government payments," David Ndii revealed.
Despite 16 million Kenyans working in the informal sector, Moses Kuria revealed that KRA was only able to collect Ksh12 billion in income tax from them, compared to Ksh500 billion from the three million formally employed Kenyans.
Currently, the VAT Regulations 2020 mandate businesses to use electronic tax registers (ETRs) to record transactions.
Under the existing system, businesses must manually input tax data, with the new system that will be starting in December, the tax data will be input automatically immediately after the payment is made.
This new move will tighten the loopholes leaving no room for discrepancies and underreporting.
