AFRICA: Tax authority to launch new database to curb tax evasion in Kenya

The Kenya Revenue Authority (KRA) is reportedly considering a new transfer pricing database, allowing its agents to review multinational company transactions to detect tax evasion and ensure compliance.
Installing the transfer pricing database will assist KRA agents in compiling, analysing, and managing data from cross-border transactions. The database will present the data electronically.

KRA plans this initiative months after the national treasury issued a new draft Income Tax Rules that proposed broadening the scope of transactions subject to transfer pricing rules.
Transfer pricing is the price at which goods and services are exchanged between companies sharing common control or ownership, whether in a cross-border or domestic transaction. For example, when a subsidiary company sells goods or services to its parent or another affiliated one, the transfer price is the fee charged for these transactions.

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However, the use of this practice by some multinational corporations to evade tax payments has raised concerns among tax authorities. They take advantage of transfer pricing by changing their taxable income, potentially lowering their overall tax burden.

Some multinational corporations use the transfer pricing scheme to shift their tax liabilities to low-cost tax jurisdictions. Consequently, KRA has stated that it plans to implement a tool to improve company auditing.

“The KRA is desirous of having access to a transfer pricing benchmark tool database that will enhance transfer pricing audits of multinational enterprises and audit of companies in extractive industries.”

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The authority is also considering including pricing and margin-based information on various transactions, such as manufacturing, distribution, services, and royalty agreements, as well as enabling benchmark studies, in the new transfer pricing database solution.

Kenya also appears to be prepared in terms of taxation and remittance. While it focuses on multinational corporations and provides transfer pricing rules, it has also launched a new platform for non-VAT registered taxpayers called “eTIMS Lite.”

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In 2022, the KRA launched the Tax Invoice Management System (TIMS) for tax payment, followed by the electronic tax invoice management system (eTIMS) in 2023.

KRA required all businesses, including informal and small businesses, to electronically generate and send invoices through the eTIMS. Companies with less than KSh5 million (~$38,000) in annual revenue must generate eTIMS invoices using the eCitizen platform or USSD.