Kenya Revenue Authority (KRA) to Bolster Tax Monitoring via Telco Integration
28 August 2023
Kenya Revenue Authority (KRA) to Bolster Tax Monitoring via Telco Integration
To curb tax evasion and enhance revenue collection, the Kenya Revenue Authority (KRA) is set to establish real-time transaction monitoring on mobile merchant accounts, including Safaricom's Lipa Na M-Pesa. The move follows the successful integration of KRA's platform with betting companies to track tax evasion. KRA's initiative aims to provide a constant view of the substantial annual transactions conducted on telecommunications networks, with the intention of identifying instances where telecommunications companies and traders manipulate tax declarations.
Reports indicate that KRA has initiated integrating its systems with those of telecommunications providers to facilitate this real-time transaction monitoring. The integration would grant KRA immediate access to transaction data, aligning with President William Ruto's directive to ensure comprehensive tax collection. While the integration is still in its initial pilot phase, David Mwangi, the acting commissioner for the domestic taxes department, expressed optimism about the endeavor's potential impact. He highlighted the objective of using the real-time data to identify trends and implement compliance measures to maximize revenue collection.
A significant focus of this initiative is to target traders who have historically evaded taxes by under-declaring their earnings. By processing transaction data from merchant digital accounts like Safaricom's Lipa Na M-Pesa Pay Bill and Till wallets, KRA intends to pinpoint discrepancies between actual transactions and reported tax payments.
BANKING
Banks Extend Loan Maturity Periods to Alleviate Pressure on Customers Amidst Rising Deductions and Interest Rates
In response to the mounting financial strain on customers stemming from increased state deductions, including the housing levy and pension contributions, banks are taking proactive measures to prevent a potential surge in loan defaults. The recent surge in statutory deductions, coupled with a hike in interest rates aligned with the rising Central Bank Rate (CBR) – presently at 10.5 percent, the highest level in almost seven years – has placed borrowers in a precarious situation with elevated monthly deductions, thereby heightening the risk of loan defaults.
Samuel Tiriongo, the Director of Research and Policy at the Kenya Bankers Association, revealed that financial institutions are stepping in to support distressed borrowers by extending loan repayment periods. By elongating the tenure of loans, banks aim to reduce the immediate burden of higher monthly deductions, thereby safeguarding borrowers against the potential consequences of non-payment. Dr. Tiriongo noted, “Banks have been keen not to increase interest rates immediately following the CBR rise but to adjust loan tenors so that the repayment schedule remains the same.” This strategic approach seeks to balance the impact of increased repayments while preventing mass defaults.
This proactive strategy bears resemblance to the measures adopted during the height of disruptions caused by the Covid-19 pandemic. Just as banks extended loan servicing breaks and introduced flexible repayment terms to accommodate struggling individuals and businesses, the current initiative underscores the industry's commitment to supporting customers during financial uncertainty.
ENERGY
Fuel Consumers Face Potential Loss of Sh1.7 Billion Amidst Controversial Price Inflation
In a development that has ignited uproar within the fuel industry, fuel consumers in Kenya are on the verge of losing an estimated Sh1.7 billion due to a controversial decision by the government to permit a single supplier to sell fuel at prices that have been artificially inflated by 17 percent. The controversy revolves around Oryx Energies Limited, one of the selected suppliers for diesel by Saudi Aramco, in conjunction with Galana Oil Kenya. This move, which has created a schism among industry stakeholders, could have significant ramifications for consumers and the economy at large.
The crux of the dispute centers on Oryx Energies Limited, which was awarded a contract to supply 85,000 metric tonnes of automotive gas oil (diesel) between August 12 and August 14. However, citing a delay in offloading the fuel at the jetty, Oryx requested an extension of six days to avoid demurrage charges. Surprisingly, the request was granted by the Petroleum Principal Secretary, Mohamed Liban, allowing Oryx to deliver the cargo between August 19 and August 21. The real concern arises from the fact that Oryx, having initially purchased the diesel at a Platts price of $97.88 (Sh14,182) per barrel in July, is now authorized to sell the same fuel to oil marketing companies (OMCs) at $114.5 (Sh16,585) per barrel, marking a substantial 17 percent increase in price. This price disparity could potentially translate into a staggering Sh1.7 billion loss for consumers unless government intervention stabilizes the situation during the forthcoming fuel pricing review.
The implications of this controversial decision are far-reaching. While Oryx is able to honor its agreement with Saudi Aramco using the initially agreed-upon prices, the company is set to make significant profits by selling the fuel to dealers at the inflated August price. This would place an undue burden on consumers, who would inevitably foot the bill through elevated fuel prices. This contentious situation underscores the need for transparent and equitable practices within the fuel industry, as well as the necessity for robust regulatory oversight to prevent such instances of price manipulation, protecting both the consumers and the industry's integrity
ECONOMY
Tier One Banks Benefit from Shilling's Depreciation with Sh14.5 Billion Currency Gains
Tier one banks in Kenya have reported substantial gains of Sh14.5 billion in the first half of this year, owing to the depreciation of the Kenyan shilling against the local currencies of their regional subsidiaries. This surge in gains marks a remarkable increase from the Sh3.96 billion recorded in the same period last year. The boost in currency gains has, in turn, elevated the value of these banks' earnings, dividends, and assets.
Regional subsidiaries generally maintain their financial records in their home currencies, or functional currencies. However, when these financials are consolidated into the parent group, they are converted into Kenyan shillings, the reporting currency. Consequently, the financial performance is impacted by exchange gains or losses based on the movement of the Kenyan shilling against the operating currencies of the subsidiaries.
Notably, the Kenyan shilling experienced an 18 percent depreciation against the Ugandan shilling, a 13 percent depreciation against the Tanzanian shilling, and a 4.8 percent depreciation against the Rwandese Franc between June 2022 and June of this year.Lenders with a presence in the Democratic Republic of Congo (DRC) have also benefited from the strengthening of the US dollar against the Kenyan shilling, reporting a 19 percent gain in translated currency earnings up to June. The DRC relies extensively on the US dollar as its primary medium of exchange within the local economy. While most currencies across the region have faced downward pressure due to global economic shocks, the Kenyan shilling has exhibited comparatively greater weakness, plummeting to record lows of 150 units to the dollar recently. Equity Group, a prominent bank operating across Kenya, Uganda, Tanzania, Rwanda, the DRC, and South Sudan, emerged as a frontrunner with the highest currency gain of Sh6.3 billion, a substantial rise from the Sh637 million reported in June 2022.
COMPANIES
Kenya Power Seeks Government Assistance to Convert Foreign Debt Amid Currency Depreciation
Kenya Power, the country's leading electricity utility provider, is urgently seeking the government's intervention to convert a significant portion of its dollar-denominated debt into Kenya shillings. This move comes as the company grapples with the impact of the depreciating local currency on its financial stability. Joseph Siror, the Managing Director of Kenya Power, revealed that up to 30 percent of the company's foreign currency loan portfolio is being considered for redenomination, contingent on favorable outcomes from ongoing discussions with the National Treasury.
In an interview with the Business Daily, Siror emphasized the need to address the challenge posed by foreign exchange debt. He noted that the company possesses adequate liquidity in Kenyan shillings but is burdened by the volatility of foreign exchange rates. The Kenyan shilling has experienced a significant decline, losing 18 percent of its value against the US dollar since the beginning of the year, with an exchange rate of 144.5 shillings per dollar recorded on August 23. This depreciation has directly affected Kenya Power's financial standing and debt obligations denominated in foreign currency.
According to Kenya Power's latest annual report:
Its total borrowing as of June 2022 amounted to Sh103.8 billion, with a substantial Sh76.2 billion in US dollar-denominated debt.
The remaining debt was divided between the Kenya shilling and the euro, standing at Sh17.5 billion and Sh10.1 billion, respectively.
The company's financial performance faced setbacks in the first half of 2022, as it reported a loss of Sh1.1 billion, attributed largely to debt service obligations of Sh7.4 billion erasing the operating profit of Sh5.7 billion.
WHAT YOU MUST HAVE MISSED
Nationwide power blackout
Power went off in many parts of the country at 9.45 p.m. (1845 GMT) on Friday, the electricity distribution company KPLC said in a statement, attributing the loss to "a system disturbance”. The KPLC Kenya board chairperson Joy Mdivo-Masinde on Saturday explained what exactly caused the nationwide blackout on Friday evening. Mdivo said the outage was due to a loss of power at the Turkana power station affecting the supply.
She said the grid is designed in such a way that when a maximum of 4 percent of the power needs is lost, other parts of the grid that are powered pick up the slack.
However, with the Friday situation, the loss exceeded the 4 percent loss, making the grid unable to handle it. - The KPLC Kenya board chairperson
Nairobi-based pyrethrum company Kentegra Biotechnology to receive Sh2.1 billion (USD 15 million) in equity and loan financing
Kentegra Biotechnology will receive Sh2.1 billion (USD 15 million) in equity and loan financing from Finnish development financier Finnfund and the United States Development Finance Corporation (DFC) to expand the firm’s production of pyrethrum flowers and revive the sector.
Kentegra Biotechnology produces and sells pyrethrin extracted from dried pyrethrum flowers to global insecticide and pesticide manufacturers.Kenya’s pyrethrum business thrived in the 1990s but activity has dwindled due to competition from cheaper synthetic pesticides. The loan proceeds will be used to expand the firm’s capabilities to produce pale refined pyrethrum extract, for working capital, and to access new international markets.
Twiga Foods is banking on an aggressive cost-cutting strategy to remain operational amid a protracted funding drought.
The ongoing restructuring comes after the company raised a cumulative $160 million (Sh23.2 billion at current exchange rates) since inception which has been inadequate to sustain its business. Twiga Foods Managing Director Peter Njonjo told Business Daily on Wednesday that the revamped strategy seeks to cut the firm’s overall operational costs by up to 40 percent, including laying off a third of its permanent staff by next month. Mr Njonjo confirmed that all 267 of the total 810 staff have already received their redundancy notices, adding that the process had been handled in accordance with all laid down ethical requirements.
Eldoret International Airport has resumed cargo flights and business 2 months after a strike from small traders
Eldoret International Airport has resumed cargo flights and business after two months of protest by small traders following the new government tax policy to compute taxes per unit, a shift from a pool where they were levied per kilogram. The traders operating under the Kenya Association of International Cargo Consolidators (KAICC) have come into an agreement with the Kenya Revenue Authority (KRA) and individual importers will now have to pay taxes for each item shipped into the country through the facility.