Smaller businesses could be excluded from world government’s plans to make business transactions digital, according to a new research by the Institute of Chartered Accountants in England and Wales (ICAEW), which compares success and failure of global attempts to digitalize taxation.
This comes against a backdrop of efforts by the Kenya Revenue Authority (KRA) to increase the tax net by targeting SMEs through introduction of presumptive taxes. ICAEW Technical Manager David Lyford-Smith said in a media dispatch to newsrooms that the risk of exclusion of the smaller business reduces the chances of businesses being compliant.
“The largest and most persistent issue in introducing the digitization of tax is that of digital exclusion, which is common among small businesses,” Mr Smith said. “While the Government and the KRA can work to educate and provide resources for many affected by digital exclusion, total compliance remains a challenge.”
He added that there must be an avenue for those who cannot comply with digital reporting to avoid penalties. “This may be through the maintenance of traditional paper-based record keeping and filing or via supporting a network of accessible and affordable tax agents that can keep records and file on behalf of their clients,” said Mr Smith.
KRA’s target to net at least 3.06 million new taxpayers by 2021 has seen it heavily deploy technological systems in recent years, including iTax, the online tax filing system, Integrated Customs Management System (ICMS) for real-time monitoring of goods entering the country through the Mombasa Port and airports, and Electronic Cargo Tracking System (ECTS) for transit cargo.
Digital tax regime should not be made compulsory but should instead be a matter of choice for business owners.
“We should look at examples of other countries where the digitization of tax has been introduced to see the universal impact,” said Mr Smith, observing that although Russia has rolled out a programme of digitised tax services quickly through robust regional pilot testing, the rapid pace of change has led to some inefficiency.
Estonia’s programme of digital transformation is seen as one of the leading examples in the world and yet digital exclusion is still a common problem among older citizens and in remote areas where internet connectivity is poor.
“We believe the move to digitise tax regime should not be made compulsory and instead should be a matter of choice for business owners based on a compelling business case for change,” added Smith.
KRA is also banking on enforcement of the presumptive taxation regime for micro and small-sized businesses from January 1 to ramp up numbers in the tax net. The taxman warned that beginning August 31 of last year, it would kick-off a drive aimed at deactivating Personal Identification Numbers (PINs) which were yet to be linked to the iTax system.