The Kenya Revenue Authority (KRA) is now targeting businesses and individuals generating Sh200 million or less in annual revenue as part of its latest strategy to widen the tax base.

The informal sector, which comprises a significant portion of the economy, has remained largely untaxed, prompting the taxman to introduce measures aimed at boosting compliance.

George Obel, the Acting Commissioner of the newly established KRA Department of Micro & Small Taxpayers, acknowledged that despite the sheer number of small traders, their contribution to tax revenue has been minimal.

"What we miss on the large and medium side is the numbers are on this other side; for example, we have about 20 million PIN holders and most of them are the small and micro taxpayers, these are the ones we want to focus on," Obel stated.

"And if you look at the entire bucket of domestic taxes, medium, large and government agencies give us about 86 per cent and all these other numbers give us only 14 per cent, and you see the opportunity there to be able to grow the basket."

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To close existing loopholes, KRA intends to intensify scrutiny of business transactions within the informal sector.

A significant number of small enterprises, though registered with Personal Identification Numbers (PINs), have been evading taxes by filing nil returns.

By leveraging data from government records on asset ownership, including land and motor vehicles, the tax authority plans to track undeclared income.

“You’ve got information when you're doing transactions at every level, that information or that transaction will be picked out; let me give you a simple example, if you offer services to an established business and it’s a service that attracts withholding tax,” Obel explained.

“They are going to withhold and remit and they are going to ask you for your PIN and use information to remit that now that withholding tax is not a final tax, so we already are expecting you to know that at the end of a period you’ve got to file and declare the total income and we can work backwards.”

The taxman will particularly focus on key industries such as transport, ICT, and agriculture, as well as suppliers doing business with the government.

To encourage compliance, KRA is looking to empower consumers by incentivising them to demand fiscal receipts, which would enhance transparency and accountability in the targeted sectors.

“We have got to reach them where they are and you’ve got to find ways and means to be able to have critical point that you can then be able to reach them because you find them in several ecosystem,” Obel noted.

With the introduction of this specialised department, KRA hopes to streamline tax collection from small and micro enterprises while also addressing the challenges that have hindered their compliance.