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Kenyan banks confront tax authorities over data protection

By , Kenya Correspondent
Kenya , 21 Feb 2025
The Kenya Revenue Authority is facing resistance from Kenyan banks in its efforts to integrate the tax system with 39 of them
The Kenya Revenue Authority is facing resistance from Kenyan banks in its efforts to integrate the tax system with 39 of them

The Kenya Revenue Authority (KRA) is experiencing severe resistance from Kenyan banks in its efforts to integrate the tax system with the banking sector.

The measure is based on the mandate  aim outlined in the Tax Procedures (Amendment) Act, 2024, to improve tax collections and prevent evasion.

However, banks affiliated with the Kenya Bankers Association (KBA) are citing concerns about client data protection and a lack of proper legal frameworks for sharing personal information.

KRA's quest for system integration aims to provide real-time access to financial activities, allowing the authority to better track tax obligations.

The tax authority hopes to increase revenue collection and detect non-compliant taxpayers through an integration process with 38 banks, which will also improve transparency.

Financial companies have continued to fight the adoption, alleging a lack of proper legal protection and the potential intrusion on their clients' privacy.

A workshop last week attended by the KRA, banking sector officials, and legislators failed to achieve an agreement on implementation methods that would not violate the Data Protection Act.

The banking industry contended that releasing depositor data without specific written or recorded authorisation violated the Data Protection Act of 2019, which permits such disclosures only where there is an explicit provision, such as national security or public interest, among others.

The banking sector stated that their current integration with the Central Bank of Kenya (CBK) followed a framework that protected customer anonymity.

They contended that the approach presented by KRA was considerably different from that, and so the banks would face potential legal concerns.

Financial institutions expressed worries about clear legal restrictions that would undermine public trust in the banking system if direct access to customer transactions were permitted.

The KRA, for its part, believes that integrating its systems with banks is a baseline prerequisite for boosting tax compliance, particularly for high-income individuals and firms that tend to understate their earnings.

The institution now tracks liabilities using sources such as import records, motor vehicle registrations, and utility bills. It claims that without access to bank transactions, it cannot adequately enforce tax compliance. 

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