Like all other tax collectors working for the Roman Empire, Zaccheaus, the chief tax collector in Jericho, was seen as a sinful figure of ill-repute: self-enriching, corrupt and traitorous to the Jewish community. Nonetheless, he was willing to do anything possible, even climbing a sycamore tree just to catch a glimpse of Jesus on his way to Jerusalem.
Similarly, the Kenya Revenue Authority (KRA) under has clearly demonstrated its readiness to go to great lengths to make sure every taxpayer gives to Caesar what belongs to Caesar. For the current financial year, KRA has set a Sh2.768 trillion target which it intends to meet by all means come June 30, 2024.
THE MENACE OF TAX EVASION
Though taxes are said to be as inevitable as death, many Kenyans are attempting to cheat their fate. With the skyrocketing cost of living and a struggling economy putting immense pressure on businesses, it is no surprise that tax evasion has become rampant in the recent past.
The Organization for Economic Cooperation and Development (OECD) has defined tax evasion as
“The intentional misrepresentation of tax obligations for instance underreporting of income and/or overreporting of expenses”
According to KRA reports,
- tax evasion schemes;cost the country an estimated KES 259 billion annually in lost revenue.
- statistics show that of the 759,164 companies registered in Kenya, only 504,036 of them filed annual returns for the financial year 2021/2022.
- Of these, only 84,428 firms declared and paid corporate tax. This means that 84% of companies in Kenya are either loss making businesses or inactive.
This may speak to the treacherous business environment in Kenya, but it also raises concerns of endemic tax evasion among not only companies but individuals as well.
Needless to say, KRA is not willing to turn a blind eye to the atrocities of tax non-compliance that are being committed left right and center. The authority is using all the weapons in its arsenal to fight and obliterate the enemy of tax evasion; a war it does not intend to lose.
CAN KRA USE ARTIFICIAL INTELLIGENCE TO COMBAT TAX EVASION
Imagine having a super-efficient assistant who never sleeps, has an impeccable memory, and can sift through mountains of paperwork/data in seconds. That’s what Artificial Intelligence (AI) is to KRA. AI is like giving a computer a brain similar to ours, but with the ability to process and analyze data at an incredibly fast rate.
This technology enables KRA to quickly sort through tons of data from tax returns, financial statements, and online activities. Think of it as a detective that can spot a needle in a haystack — except the needle is tax evasion, and the haystack is the massive amount of financial data generated every day. AI looks for patterns that humans might miss, such as odd transactions or mismatched information, that could suggest someone isn’t paying their fair share of taxes.
By integrating AI, KRA isn’t just upgrading its toolbox; it’s revolutionizing the way tax compliance is monitored. The goal isn’t to replace human workers but to give them superpowers — allowing them to see through complex data with clarity and precision. In the future, KRA’s AI systems will connect with different economic sectors, making sure every transaction is visible and taxable, from mobile money transfers to online shopping carts.
So far, the reliance on technology has yielded positive results. According to KRA’s annual report for the period July 2022 – June 2023, the authority collected KES 2.166 trillion in revenue, which was a KES 135 billion increase from the previous financial year.
THE CHALLENGE OF USING ARTIFICIAL INTELLIGENCE
Despite the excitement around the potential and capabilities of AI, it is important to question the existential risks that come with using it. For instance, can we rely on a technology that we are yet to fully understand? Do we even have robust policies and regulations to cushion us from the ethical and safety concerns posed by AI?
Similar to many other African countries, Kenya lacks a dedicated national AI strategy or regulatory framework to handle the emerging challenges associated with the adoption of AI systems. Instead, it relies on several existing laws such as the Data Protection Act (DPA) of 2019, and the Computer Misuse and Cybercrimes Act of 2018 to tackle AI and related technology issues.
Needless to say, the lack of regulation of AI in Kenya poses a huge challenge to KRA’s efforts in fighting tax evasion. One major concern is the privacy and security of taxpayer data, which could be exposed to unauthorized access, misuse, or manipulation by malicious actors.
Additionally, the ethical and legal implications of using AI for decision-making must be carefully considered, as biased, discriminatory, or erroneous algorithms could infringe on taxpayers’ legal rights. Finally, enforcing and holding accountable an AI-based tax system is critical to ensure compliance, transparency, and fairness. KRA and AI developers must be prepared to answer for any harm or wrongdoing caused by AI.
HOW KRA CAN ADDRESS THESE CHALLENGES
In order to mitigate these challenges, it is imperative for Kenya to develop and implement a comprehensive regulatory framework for AI that balances between protecting the rights and interests of the taxpayers while promoting innovation and development of AI systems. The framework should include guidelines and standards for data privacy, security, ethics, accountability, transparency, and fairness in the general use of AI.
Moreover, in order to bolster the deployment of AI in tax administration, keen attention should be given to the quality of training data which is central to tax authorities’ operations. This can be achieved by ensuring that the data is representative, accurate, reliable, and relevant since AI can only be as good as the data it is trained on.
In a nutshell, the government has intensified its purge on entities and individuals who evade to pay their taxes with the aim of achieving its revenue collection targets. Kenyan taxpayers are now under even tighter scrutiny from KRA, which is now leveraging on technology by using AI to improve efficiency, effectiveness, and integrity in tax collection and enforcement.
However, relying on a technology that is unregulated is a dicey affair, akin to a soldier entering battle without proper knowledge of their weapon. It is therefore crucial that the use of AI in tax administration is implemented within established statutory boundaries to avoid a scenario where the taxman wins the battle but loses the war.