According to local reports, the Kenyan government has announced a new policy that will designate all digital payment systems as virtual electronic tax receipts (ETR) systems starting December 25 2024.

This is the latest measure by the East African nation to boost revenue collection as it grapples with gaping budget deficits.

The country’s Minister for Treasury and Economic Planning has also asked the Kenya Revenue Authority (KRA) to embrace new technologies like blockchain to facilitate trade and enhance domestic resource mobilization.

The proposed policy to designate all digital payment systems as virtual electronic tax receipts services means systems such as mobile money service M-PESA and Bank PayBills, till numbers, and other merchant payment systems will be deemed as ETR systems.

Moses Kuria, a senior Economic Advisor to President William Ruto, asked stakeholders to inform users of the impending changes while noting Kenya’s strong digital payments ecosystem.

“Please whisper to them that come Christmas 2024, all pay bills will also be virtual ETRs for purposes of KRA,” said Mr Kuria.

The president’s advisor expressed concern that the number of registered Electronic Tax Register (ETR) devices is still low, with only 200,000 users, representing a small portion of potential adopters. He highlighted the significant gap between digital payments made through banks and mobile money and the large base of active users.

Kuria views the new policy as an opportunity for the government to “harvest” more revenue from the working class.

“Combined, all our telcos and the banks who are doing mobile money, we’ve got, you know, what we call digital touchpoints for payments, two million of them. Ten times the ETRs we have at KRA. That just speaks to the huge, huge opportunity that Kenya has to even have what I would call the early harvest.”

As part of the new policy, mobile money payments will be considered equivalent to eTIMS receipts (tax invoices) and will therefore be accepted for income tax deduction purposes.

According to Kuria, the initiative is part of the government’s effort to increase tax collection from working Kenyans. He pointed out that many Kenyans are employed informally, allowing them to evade paying income tax.

“People in the formal sector, both in public sector and the private sector, we have got 3 million people within the formal sector. Within the informal sector, we’ve got 16 million,” stated Moses Kuria.

Kuria highlighted that while the formal sector consists of just 3 million taxpayers, it contributes a significant 500 billion shillings (around $4 billion) in income taxes. In contrast, the informal sector, with 16 million individuals, contributes only 12 billion shillings.

The president’s advisor views this disparity not only as an economic issue but also as a complex problem with important socioeconomic, ethical, and equity implications.