Kenya's revenue woes potentially stem from the criteria for attributing PINs

Big Four accounting and advisory firm EY has indicated that the criteria being used by the Kenya Revenue Authority (KRA) to collect revenue is the root cause of its tax collection woes. The current list of potential tax sources includes a large number of individuals who do not generate an income. 

Kenya appears to be suffering from a similar problem as many major African economies. As these countries continue on the path of economic development, governments are struggling to reap benefits of this growth due to high tax default rates and failure to generate targeted tax collection pools.

Tax to GDP ratios across the continent at faltering, and many have been looking for possible solutions to the problem. Some have suggested that, much like most other problems in the contemporary scenario, technology is the solution to the widespread tax collection problems.

Others have suggested that more equitable economic growth is the solution to generating more taxes. However, global professional services EY appears to have identified an issue that is unique to Kenya when it comes to revenue collection – that of the Personal Identification Number (PIN). 

So far, KRA’s revenue estimates have been based on the number of PINs in the country, which has caused a host of problems. However, as illustrated by EY, a number of people that hold PINs do not generate any income, and are unable to pay taxes.

“Basing collections on the number of taxpayers more than growth is a bad thing because even students require a PIN to access loans. If you use this to assess revenues, then projections will be fundamentally flawed,” explains Christopher Kirathe, Tax Partner at EY Kenya.

Similar oversights have led to the presence of the unemployed and the retired on Kenya’s revenue sheets, which has thrown off estimates significantly. KRA has sought to tackle this issue in the past by eliminating inactive PINs, although the agency was still left with half a roster that was inactive. According to Kirathe, the criteria needs to be expanded to consider quality of the tax payer.