State seeks legal backing to spy on your M-Pesa, bank accounts

The government plans to amend the Data Protection Act to allow the Kenya Revenue Authority (KRA) to identify potential tax discrepancies by analysing bank and mobile money transactions.

This is part of President William Ruto’s new grand plan to broaden the country’s tax base by catching tax evaders and raising revenue at a time when the taxman has been missing its revenue targets.

The radical plan is contained in the Finance Bill 2024. The Data Protection Act limits how personally identifiable data obtained by firms and government entities can be handled, stored and shared.

“The Bill seeks to amend section 51 of the Data Protection Act (Cap. 411C) to provide for the exemption of the processing of personal data that relates to the assessment, enforcement or collection of any tax or duty from the provisions of the Data Protection Act,” says the Finance Bill.

The Kenya Kwanza administration reckons the taxman’s ability to legally collect transactional data on popular mobile money services like M-Pesa from all traders, individuals, and companies in the country will help tighten the noose on tax cheats.

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Advanced analytics

KRA has in recent years stepped up the adoption of technology to snoop on tax evaders.

Under its spying plan on business and customer transactions, it is embracing new advanced analytics and AI applications to scrutinise enterprises and customer data to automatically spot red flags and build evidence that can be used to levy higher assessments.

Such unfettered access, the Ruto administration believes, will be able to assist KRA spot red flags and build evidence that can be used to levy higher assessments against tax cheats.

“KRA will implement…the…integration of KRA tax system with the Telecommunication companies,” said the Treasury earlier. The move to monitor bank accounts and mobile money accounts has been controversial and is likely to set up the new administration with fresh legal battles from data privacy lobbyists.

Yet it is easy to see why the Treasury is tempted to bank on access to digital financial transactions to snoop out tax cheats and grow collections.

M-Pesa for instance, accounts for about 99.9 per cent of the value of mobile money transactions, underlining the entrenchment of the platform in Kenya’s economy.

In the year to March 2022, payments of Sh1.4 trillion were made through the Lipa na M-Pesa platform and a total of Sh9.78 trillion was paid through M-Pesa, entrenching the popularity of the platform as a means of commerce as opposed to paying via cash.

The Treasury in earlier reports warned that the collapse of the M-Pesa service would cause widespread disruption in the economy.

This means M-Pesa is classified as a systemic risk to the country’s economy, underlining its crucial role.

Many lenders have rolled out digital banking platforms, which have cut the need for customers to visit brick-and-mortar outlets for services such as opening accounts, balance inquiries, and settling bills.

Over 400,000 businesses currently use Safaricom’s Lipa na M-Pesa service.

The KRA has also been seeking to raise Value Added Tax (VAT) collections by fully rolling out a new electronic Tax Invoice Management System (eTIMS). The new system collates data from all traders, individuals and companies in the country in near real-time, tightening the noose on tax cheats.

Armed with new electronic invoicing and reporting tools from the new eTIMS, KRA is now able to collect information without waiting for taxpayers to file, even at the point of a commercial transaction to make its own assessment of the tax due.