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The Kenya Revenue Authority (KRA) plans to use artificial intelligence (AI) to step up its efforts to catch tax evaders, officials have revealed.
The KRA, which has perennially failed to meet its targets, believes the implementation of new technology has the potential to significantly improve its detection capabilities and stamp out tax evasion.
This is because AI can analyze millions of data points and identify complex patterns that are difficult for human auditors to spot.
The plan was revealed by the Director General of the Korea Tax Service, Humphrey Wattanga, on Tuesday during a meeting with the new Finance Minister, John Mbadi, to outline the agency’s move to restructure its IT infrastructure.
As new plans are introduced KRA always misses its tax collection objectives, CS Mbadi urged the agency to adopt more innovative and technologically advanced strategies to boost tax revenue.
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 catch tax evaders more effectively.
Detection Mode
According to the director, the new AI system will be able to mine large amounts of data to detect patterns and anomalies that could indicate tax fraud.
“The adoption of data science, machine learning and artificial intelligence (AI) will enhance our ability to identify and address potential tax evasion through data-driven decision making,” Mr Watanga said.
AI can automate laborious tasks and analyze large amounts of data, which tax officials believe will enable them to analyze transaction records such as bank statements and other financial data to detect underreporting, false deductions and other forms of tax evasion.
Experts say AI can analyze vast amounts of data, make hypotheses and provide predictions at a scale and depth that no individual could, and many organizations are eagerly exploring the use of AI tools for a variety of purposes.
Additionally, it can be managed without the constraints of human management, thereby reducing downtime, staff turnover, knowledge gaps and costs.
In essence, AI applied advanced analytics and logic-based technologies to interpret events, supplement and automate processes, and help organizations take effective action.
The implementation of AI technology is expected to significantly improve KRA’s detection capabilities as the system can analyze millions of data points and identify complex patterns that are difficult for human auditors to detect.
KRA failed to achieve its ambitious tax collection target for the 2023/2024 fiscal year, dealing a blow to the government’s revenue and development plans.
Despite an 11.1% increase in total revenue to Sh2.407 trillion, the tax agency failed to achieve its target, leaving policymakers and industry stakeholders concerned about the underlying factors that led to this underperformance. KRA aims to collect Sh2.768 trillion by the end of the 2023-2024 fiscal year. It is reviewed downward to Sh2.5 trillion, meaning it failed to achieve both targets.
The effort to meet the revenue target comes at a critical time as Kenya endures a period of economic uncertainty with soaring inflation, currency depreciation and weakening consumer demand.
The new finance minister, Mbandi, urged KRA to put its house in order by adopting more innovative and technologically advanced strategies to strengthen revenue collection.
According to a press release issued after the KRA’s tax chief met with KRA senior leaders and staff, he stressed the need for “constant modernization” in tax administration to streamline business processes, utilize cutting-edge systems and simplify tax transactions.
“It is imperative that our modernization process is aligned with our goals and those of taxpayers. This approach will not only benefit taxpayers but will also significantly boost our revenue mobilization efforts,” said Mr Mbadi.
He said the National Tax Policy outlines the government’s tax expansion plan and will support the broadening of the tax base, enhance the fairness and equity of the tax system, and create certainty and predictability in tax rates and bases.
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