NAIROBI, KE: The Kenya Revenue Authority (KRA) has shifted its focus on payments made to local doctors by 12 overseas insurance firms that provide cover to Kenya’s wealthy businessmen and expats in the continuing crackdown against tax evasion.
KRA, in a notice to local insurers, wants a record of doctor payments made by the foreign-based insurance firms that include the U.S and European firms to enable it calculate taxes due from medical providers and practitioners connected to them.
The companies include American-managed health care company Aetna, UK-headquartered Bupa International Limited, Allianz Worldwide Care, which is headquartered in Ireland, British firm Exeter Friendly Society, William Russell with head offices in the UK, and Danish firm IHI Danmark.
Others include InterGlobal Insurance Company, London-based Expacare International, AWS Allianz, Cigna International Limited, and AXA PP healthcare, a UK private medical insurance firm.
These firms are popular for their clientele list of rich affluent Kenyan citizens, businessmen and expatriates who pay premium rates for international standard healthcare, general insurance and wealth management services.
“The Authority is amplifying its efforts to ensure that all medical practitioners are within the tax brackets to facilitate fair distribution of the tax burden and ensure the payment of commensurate taxes,” says KRA in a letter to insurance brokers seen by the Business Daily.
“The purpose of this letter is to remind you to provide the requested data, failure to which you will be in contravention of section 24A of the Tax Procedures Act.”
Earlier this year, the taxman ordered insurance firms, brokers and hospitals to file information on doctors’ fees payments going back four years with an interest on tax-evading health professionals.
The notice sent in June targeting pharmacists, doctors and dentists is expected to see the medical practitioners obtain tax bills dating back to 2015.
The demand for declarations was based on the Finance Act 2016, which gave KRA access to third-party data for tax collection reasons.
“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,” stated an earlier letter from KRA.
KRA, who have often missed Treasury-set collection targets, is looking to block revenue leaks against backdrop of always-higher collection targets set by the country’s Treasury.
In the current financial year, the Treasury expects the taxman to collect Sh1.938 trillion in tax, up from the Sh1.58 trillion target last year.
Insurance firms paid out a total of Sh20.44 billion in claims last year, Sh5.44 billion more from 2015, according to the Insurance Regulatory Authority data.
According to industry estimates, doctors earn up to 40% of the total insurance claims in form of fees. This means they will be required to pay tax of about Sh8.2 billion from their 2018 earnings.
“Kindly note that, in the case where you don’t make direct payments to the medical practitioners, you will be held responsible for ensuring that the international companies you facilitate provide the required to KRA,” says KRA in the latest notice.
The taxman is counting on this data to improve his tax collection by pressuring doctors who have either been evading or under-stating their tax obligations.
The vast majority of Kenyans who have no health cover and pay their medical bills in cash could, however, make it hard for KRA to get reliable information on the doctors’ earnings.
There exists around 39,145 registered health practitioners in Kenya, according to the 2018 Economic Survey. These include clinical officers, medical officers, dentists, and pharmacists.
Tax experts believe KRA’s move will assist in expanding the tax net by transferring the burden of imposing compliance to insurance firms and hospitals.
Nikhil Hira, a director at Bowmans (Coulson Harney LLP) said in an earlier interview that enforcing the demand by KRA could prove tough for overseas insurance companies that have no tax obligations in Kenya and whose jurisdictions restrict information sharing, especially one related to medical records.
However, Mr. Hira said KRA could find it a breeze following the money trail for Kenyan companies because most insurance firms wire the claims directly 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 granted KRA powers to access electronic data on taxpayers without seeking a court order.