Why Kenyan Banks Are Pushing Back Against KRA’s System Integration Mandate

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The Kenya Revenue Authority (KRA) is facing significant resistance from Kenyan banks over its directive to integrate financial institutions’ systems with its own. This push, enabled by the Tax Procedures (Amendment) Act, 2024, aims to enhance tax collection efficiency and curb tax evasion.

However, banks, through the Kenya Bankers Association (KBA), have strongly opposed the move, citing legal, operational, and privacy concerns.

Concerns Over Data Privacy and Security

Banks argue that integrating their systems with KRA could lead to potential breaches of sensitive financial information. While the Data Protection Act of 2019 provides guidelines for handling personal data, financial institutions insist that additional legal safeguards are necessary before such integration can proceed.

Currently, data sharing between banks and regulators, such as the Central Bank of Kenya (CBK), is done in a manner that maintains customer anonymity. However, banks fear that KRA’s proposed integration model lacks similar confidentiality protections, exposing customer information to possible unauthorized access.

Legal and Regulatory Barriers

The banking sector is heavily regulated, with strict confidentiality agreements between financial institutions and their clients. The banks contend that the integration mandate could infringe upon these agreements and violate existing data protection laws.

Under the Data Protection Act, personal financial information can only be shared with individual consent or when mandated by law for national security or public interest. Banks argue that the proposed integration does not sufficiently meet these criteria.

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Operational and Technical Challenges

Beyond legal concerns, banks have also raised logistical and operational challenges associated with the system integration. These include issues related to system compatibility, significant costs for upgrading existing banking software, and potential disruptions to banking services.

Financial institutions argue that implementing such a framework would require extensive modifications that could affect service delivery and efficiency.

Customer Consent and Public Trust

Banks are usually bound by strict confidentiality policies, and sharing detailed financial data without explicit customer approval could be viewed as a breach of trust.

As a result, customers may become uneasy knowing that their financial transactions could be monitored more closely by tax authorities. This could negatively impact bank-client relationships and lead to reduced confidence in the financial system.

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Fear of Increased Scrutiny and Regulatory Burden

Banks also worry that integrating their systems with KRA would subject them to heightened scrutiny, potentially leading to frequent audits, inquiries, and regulatory challenges.

Such a scenario could slow down financial transactions and create an environment where banks feel pressured by increased government oversight.

Previous Resistance and Public Outcry

This is not the first time the government has attempted to enforce data-sharing mandates between banks and tax authorities. Previous legislative amendments seeking similar integration faced backlash from both legislators and the public.

The latest standoff, which emerged after a workshop involving KRA officials, bankers, and lawmakers, has yet to result in a compromise that addresses both tax compliance goals and customer confidentiality concerns.