The Kenya Revenue Authority (KRA) has established a sophisticated forensic laboratory that will allow it to mine data from taxpayers’ computers and mobile phones to discover tax and financial wrongdoing, including secret accounts and records.
The initiative by the KRA’s newly formed intelligence management division comes at a time when businesses are increasingly turning to internet transactions and electronic record-keeping over traditional paper-based accounting systems.
During the disclosure of the new laboratory, KRA noted that they would focus on electronic evidence forensic acquisition, extraction and discovery.
“A lot of evidence gathered during the course of investigations is digital in nature such as e-mails, texts, video, audio, image files, and other transactional data on hard disks and other storage media. The investigations of such crimes require sophisticated data acquisition, mining, analytics, and storage tools in addition to technical expertise to reconstruct the transactions and provide insights into complex crimes,” they stated.
Many significant firms, including some multinationals and mobile phone operators, now give KRA teams soft copy records of their transactions.
However, the change to internet transactions has posed a challenge for tax audit and investigation teams, as some businesses have begun to conceal their true financial activities and accounts.
Furthermore, tax investigators and auditors have found it difficult to gain complete access to all data from computers or phones seized during investigations into suspected fraud or tax evasion due to a password security option in digital records.
KRA has revealed that it will use specialized software to gain access to data on Macintosh computers, iPhones, iPads and other smartphones.
“The tool should also be compatible and have the ability to extract, analyse data from all types of phones and tablets, should include the full range of peripherals and accessories needed for mobile forensic investigations, including connectors… faraday bags, memory card readers, SIM and micro-SIM ID Cloning cards, cameras capturing images of the data or screenshots directly from the device…” the taxman disclosed in a tender call for supplies to the forensic lab.
KRA allocated Sh31.19 million in its budget for the financial year ending June 30, 2021 to acquire an information gathering system as it ramps up its assault on tax evasion.
In March, the KRA announced the installation of flow meters and CCTV cameras in alcohol plants in an effort to tighten oversight, ensuring the taxman round-the-clock data on manufacturing operations to combat tax evasion.
To maximise excise tax collection, the mass custody flow meter will track enormous volumes of alcoholic beverages produced.
By broadcasting data in real-time, CCTV cameras will also allow the taxman to follow what the businesses are creating.
The system is planned to work in tandem with the existing Excisable Items Management System (EGMS), which makes it easier to trace stamps on excisable goods throughout the supply chain and account for tax payments.
KRA also declared that all electronic tax registers (ETRs) equipment must be connected to its networks for daily sales tracking in an effort to tighten oversight.
The two technologies will provide KRA with a view of items as they leave the production line and make their way to the point of exchange between retailers and consumers, allowing them to collect what is owed at each stage of the supply chain.
ETRs are required by law for all firms with an annual turnover of at least Sh5 million.
In a new drive to enhance revenue collections and reduce tax fraud, the KRA would receive daily sales and invoice data from all registered enterprises and dealers under the new system.
Traders will also have to get authorisation from the taxman to conduct any further business the next day under the scheme, which means that erroneous or incomplete data logged the day before might lock them out.
ETRs with internet access have a number of unique features. For example, it records the purchaser’s personal identification number (PIN).
This is, however, an optional field when creating an invoice, and it is only used when a buyer wants to claim input tax for the VAT they paid.
ETRs with internet access have a number of unique features. For example, it records the purchaser’s personal identification number (PIN).
KRA had also announced they intend to buy high-end drones to improve its corporate tax surveillance.
“The Kenya Revenue Authority invites bids from eligible candidates for supply, delivery, testing, and commissioning of two unmanned aircraft systems for aerial surveillance,” said KRA.
Tax authorities around the world are increasingly turning to unmanned aircraft systems (UAS) to check the accuracy of tax returns or apprehend smugglers.
Tax inspectors, for example, can utilise data collected by drones to verify whether property owners have accurately valued their homes for tax purposes.
The drones will be part of a new wave of tax monitoring devices that will provide the state with real-time access to financial data, including sales returns, for analysis.