The Kenya Revenue Authority (KRA) has ordered hospitals, insurance companies and brokers to file information on doctors’ fees payments dating back four years in a fresh crackdown on tax-evading health professionals.
The move targeting doctors, dentists and pharmacists will see the medical practitioners get tax bills dating back to 2015, according to correspondence that the taxman has sent to insurance firms. The demand for disclosures is based on the Finance Act 2016, which granted the taxman access to third-party data for tax collection purposes.
“Reference is made to legal provisions under the Tax Procedures Act, 2015 Section 24A, giving the commissioner-general access to third party data. To this end, we hereby request you to provide data on payments to doctors, dentists, pharmacists and medical service providers. KRA hereby requests for data for the period January 2015 to December 2018. The data should preferably be in Excel format and submitted by 19th May 2019,” states the KRA demand letter.
Medical claims paid out by insurance companies hit Sh20.44 billion last year up from Sh15 billion in 2015, according to the Insurance Regulatory Authority data. Doctors earn up to 40 percent of the net insurance claims in form of fees, according to industry estimates. That means doctors will be required to pay tax on about Sh8.2 billion that they earned last year.
KRA is betting on this data to boost its tax collection by turning the heat on doctors who have either been evading or under-declaring their tax obligations. Majority of Kenyans, however, do not have medical insurance cover and pay their fees in cash, making it difficult for KRA to get reliable data on their income.
There are about 39,145 registered health personnel in Kenya, according to the 2018 Economic Survey. These include medical officers, dentists, pharmacists and clinical officers.
Tax experts said KRA’s move will help to expand the tax net by passing the burden of enforcing compliance to insurance companies and hospitals.
Nikhil Hira, a director at Bowmans (Coulson Harney LLP) law firm, said enforcing the demand by KRA could prove difficult for foreign insurance firms that have no tax obligations in Kenya and whose jurisdictions restrict data sharing, particularly those related to medical records.
Mr Hira, however, said the taxman could have an easier time tracking the money trail for Kenyan firms since most insurance firms wire the payments to the doctors’ bank accounts.
“It is an easy way of creating unpaid tax agents and even though it may yield some revenues for KRA, it shifts the burden of enforcing tax on other taxpayers like hospitals which eventually have to find extra resources to manage the increased workload, just like in the withholding tax approach,” said Mr Hira.
Through the Tax Procedures Act 2015, the Finance Bill 2016 allowed KRA to access electronic data on taxpayers without seeking a court order. The tool has become a weapon of choice for KRA, which is exploiting it in the race to meet its widening revenue collection shortfall.
The focus on doctors comes at a time when KRA has been assessing tax bills for landlords and property owners based on estimates from electricity meters fixed in their rental buildings. KRA has been using Kenya Power data to narrow down on individuals with more than one electricity meter registered under their names and working out their potential tax bills.
The tax man had recruited 58,934 landlords as at June 2018, narrowly missing its target of 60,000, representing a 98 percent performance against target.
“Access to third-party data from banks and utility providers was instrumental in identification of the landlords,” KRA noted in its strategic plan outline released early this year.
Grant Thornton Partner Samuel Mwaura told the Business Daily that KRA has also been using hospitals to catch doctors who have traditionally been out of the tax bracket.
“It is a way of bringing everybody into the tax net and it is going to get deeper with other institutions being brought on board as KRA makes trials to see which one works. They had tried to do the same with lawyers but were constrained by the fact that the awards are paid into clients’ accounts. Doctors are going to be an easy target,” said Mr Mwaura.