For years, the term “tenderpreneur” has left a sour taste in the mouths of honest Kenyan taxpayers. This was until the E-procurement system was whispered in town. It brought back images of shadowy deals, inflated invoices, and a culture of corruption.
This is what has been draining public coffers and starving essential services to the people for many years. The question is: Has the government finally woken up about this issue, which has bedeviled the public sector for years?
As usual, there has been resistance from various quarters. That is expected. People hate change! But this is not small. Those who know know. A seismic shift is underway.
This government’s bold move to a mandatory, end-to-end E-procurement system is not just about streamlining paperwork. It is poised to be the most powerful tool for enhancing tax compliance this country has seen in a long time, including the government itself.
As reported, this digital revolution is expected to save the National Treasury a staggering kshs 150 billion per year or more. This will be achieved by eliminating opaque deals and inefficiency.
But where will these massive savings come from?
A significant portion of the savings will be recovered from taxes that were previously evaded. Really? This includes VAT, income tax, excise duty, and customs taxes.
Let us break down how this single technological leap may force tax compliance across the board.
The Shadow Economy
The old, manual tender system was riddled with loopholes, a fact well known to many, including the government. The system allowed for “creative” accounting, where the actual value of a contract could be hidden.
Payments could also be made to ghost suppliers or for goods or services that were never delivered. That is why the government has been reviewing the list of pending bills for several months. This is at the national and county levels.
This shadow economy has operated almost entirely off the books since independence. The Kenya Revenue Authority (KRA) and other government organisations have little to no visibility into these transactions. Some taxpayers just escape with the money. It is like a heist!
The new E-procurement system will change this game entirely. Every step, from the initial tender notice and bid submission to evaluation, award, contract signing, and final payment, will be recorded on a single, immutable digital platform.
This will create a clear, auditable trail for every single shilling spent by the government. For the tax commissioner, this is not just a procurement log; it is a treasure map leading directly to taxable revenue. It will be celebration time.
But how?
1. VAT Compliance
E-procurement may bring an end to the infamous mis-invoicing and missing taxpayer scourge. The country’s economy is mostly cash-based. Value Added Tax (VAT) is one of the easiest taxes to evade in a cash-based system, particularly among dishonest taxpayers.
Here is how E-procurement may stop this:
a. Authentic Invoicing
The E-procurement system integrates with the KRA’s Tax Invoice Management System (TIMS) or eTIMS. A supplier cannot get paid without generating a valid, KRA-stamped e-invoice through the platform. This eliminates the use of fake invoices to claim non-existent input VAT or to justify inflated costs.
b. Real-Time Tracking
The tax commissioner can, in theory, monitor government transactions in real-time. They can verify whether Company X was paid kshs 10 million for a contract and whether the corresponding VAT has been declared and paid.
Discrepancies will become glaringly obvious. This will make it impossible for a supplier to under-declare the VAT collected from and to the government.
2. Declaring Real Profits
Taxpayers are required to declare actual profits for corporate income tax purposes. This is where the impact is truly transformative. Word on the street is that “Tenderpreneurs” famously under-declare their income to avoid tax.
With E-procurement, the tax commissioner will already have all the transaction information about the taxpayers’ business. How will this be achieved?
a. The Digital Paper Trail
Previously, a company could secure a kshs 100 million tender but only declare kshs 40 million as income to the tax commissioner. From the kshs 40 million, the company would deduct all expenses. This meant that the company would pocket the remaining amount of kshs 60 million tax-free. Not bad business any day.
Now, the E-procurement system records the exact award value. The tax commissioner can directly match the income declared in a company’s annual returns against the value of contracts it received from the government. Tax and business reconciliations will be easier.
b. Curbing Illicit Wealth
The E-procurement system will make it incredibly difficult to hide the proceeds of crime. A sudden lavish lifestyle that does not match the income declared to the tax commissioner becomes a massive red flag for those transacting with the government. This can be easily investigated using the digital procurement records as evidence.
3. Accurate Valuation of Imports
To pay the correct customs duty, it is necessary to have an accurate valuation of all imports. Many government contracts involve the importation of goods, from medical equipment and school desks to infrastructure materials. Opaque transactions often involve under-invoicing these imports at the port to evade customs taxes. How will this be achieved?
a. Data Integration
When the E-procurement system is integrated with the Kenya Trade Net Agency (which manages imports and exports), the magic may happen. The value of the goods declared in the tender award must match the value declared at customs.
b. Eliminating Under-valuation
A supplier cannot claim to have imported goods worth Kshs 50 million when the government contract clearly shows they were paid Kshs 100 million for the same goods.
This will force the accurate declaration of value at the point of entry. Furthermore, the system will help ensure that the correct customs duty and import VAT are paid.
4. Tracking Manufactured Goods
Most manufactured goods are subject to excise duty. For goods subject to excise duty (such as bottled water, juices, alcohol, and tobacco supplied to government institutions), the E-procurement system adds a layer of accountability.
This is one sector that has many informal players. Previously, the tax commissioner has had problems enforcing tax compliance. The inputs in the industry are mostly imported.
How will this be achieved?
Volume verification is the key thing. The E-procurement system records the exact quantities of excisable goods purchased by the government. The tax commissioner can cross-reference this data with the manufacturer’s production and shipment records to ensure that all excise duty due has been paid on those specific goods, thereby closing a potential loophole for evasion.
5. Creating a Culture of Tax Compliance
The E-procurement system may create a culture of tax compliance. This is not a new invention. It has been implemented in other countries and has been successful. The beauty of this system is that its benefits extend far beyond government contracts. The government transacts with taxpayers.
This culture of tax compliance will be achieved in the following ways:
a. Level Playing Field
Many honest businesses, which have always pay their taxes, have been consistently underbid by “tenderpreneurs”. This is because the “tenderpreneurs” could submit lower quotes, as their business model often included tax evasion. It is hoped that E-procurement will eliminate this unfair advantage. Efficiency and compliance will be rewarded, rather than fraud.
b. Voluntary Compliance
When businesses realize the tax commissioner has unprecedented access to their transaction data, the incentive to cheat will diminish significantly. The perceived risk of getting caught will skyrocket. This will encourage voluntary tax compliance across the private and public sectors.
c. Increased Revenue and Improved Services
The billions saved from opaque transactions and recovered through improved tax compliance result in more tax revenue for the government. This money will be used for healthcare, education, infrastructure, and social services.
This will create a virtuous cycle where citizens see their taxes being put to good use. The results will further encourage willingness to pay taxes.
Final Thoughts
The E-procurement system is like a digital handshake for a transparent future in the country. The implementation of a robust E-procurement system is more than an administrative upgrade. It represents a fundamental reevaluation of how the government conducts its business.
It represents a powerful digital handshake between the National Treasury and the KRA. This one squeezes out corruption and pumps lifeblood back into the economy.
By bringing transactions into the digital sunlight, Kenya is not just putting “tenderpreneurs” on notice. It is building a fairer, more transparent, and fiscally healthy future for everyone.
This is how technology, when wielded with purpose, becomes the ultimate guardian of public trust. The most effective catalyst for nationwide tax compliance to date.
Other Articles:
a. Kenya’s Pending Bills Crisis
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For tax consultancy and investment advisory – HERE
