KRA turns to AI to catch tax cheats amid shrinking revenues

The Kenya Revenue Authority (KRA) is planning to leverage Artificial Intelligence (AI) to bolster its efforts in catching tax evaders, officials have revealed. 

KRA, which has perennially missed its targets, reckons the implementation of the new technology is expected to significantly improve its detection capabilities and end tax evasion.

This is because AI can analyse millions of data points and identify complex patterns that would be challenging for human auditors to uncover. 

KRA Commissioner General Humphrey Wattanga revealed the plan on Tuesday when he outlined the agency’s move to revamp its IT infrastructure during a meeting with the new Treasury Cabinet Secretary John Mbadi. 

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The new plan comes at a time when KRA has perennially missed  its tax collection targets, which saw CS Mbadi urge the agency to adopt more innovative and technologically advanced strategies to enhance revenue collection. 

The implementation of AI technology is expected to enable KRA to flag suspicious activities and potential red flags in real-time, allowing the agency to nab tax cheats more effectively. 

Detect patterns

According to the Commissioner General, the new AI-powered system will be capable of mining vast troves of data to detect patterns and anomalies that could indicate fraudulent tax practices.

“The adoption of data science, machine learning, and Artificial Intelligence (AI) will strengthen our ability to identify and address potential tax evasion through data-driven decision-making,” said Mr Wattanga.

AI can automate laborious tasks and analyse huge sets of data, which the taxman reckons would enable it to analyse transaction records such as bank statements and other financial data to uncover instances of underreporting, false deductions, and other forms of tax evasion. 

Experts say AI can analyse vast amounts of data, make assumptions and provide predictions at a scale and depth of detail that is impossible for individuals and many organizations are eagerly exploring the use of AI tools for a variety of purposes.

Furthermore, it can do so without the administrative limitations of a human workforce – reducing downtime, turnover, knowledge gaps, and costs.  

At its core, AI applies advanced analysis and logic-based techniques to interpret events, supplement and automate processes, and help organisations take effective actions. 

The implementation of AI technology is expected to significantly improve KRA’s detection capabilities, as the system can analyse millions of data points and identify complex patterns that would be challenging for human auditors to uncover. 

KRA fell short of its ambitious tax collection targets for the 2023/2024 fiscal year dealing a blow to the government’s revenue and development plans.

Despite an 11.1 per cent increase in overall revenue to Sh2.407 trillion, the tax agency failed to reach its target, leaving policymakers and industry stakeholders concerned about the underlying factors driving this underperformance. KRA targeted to collect Sh2.768 trillion by the end of the financial year 2023-2024. It was reviewed downward to Sh2.5 trillion, meaning it missed the two targets.

The struggle to meet revenue targets comes at a critical juncture as Kenya navigates a period of economic uncertainty marked by soaring inflation, currency depreciation, and weakening consumer demand.

The new Treasury boss, Mbandi, urged KRA to put its house in order by adopting more innovative and technologically advanced strategies to enhance revenue collection.

According to a press release issued by KRA after the CS met with KRA’s top leadership and staff, he emphasised the need for “continuous modernisation” in tax administration to streamline business processes, leverage cutting-edge systems, and simplify tax transactions.

“Our modernisation journey must align with our objectives and those of taxpayers. This approach will not only benefit taxpayers but also significantly boost our revenue mobilization efforts,” said Mr Mbadi. 

He said the National Tax Policy, which outlines the government’s tax expansion plan, will support the expansion of the tax base, enhance fairness and equity in the tax system and create certainty and predictability in tax rates and tax bases.