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Government to Implement Virtual Electronic Tax Registers (ETRs) for All Payment Service Providers

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The Kenyan government has announced plans to introduce Virtual Electronic Tax Registers (ETRs) for all payment service providers (PSPs) in the country.

This new policy, which is set to take effect on Christmas Day, aims to enhance tax compliance and improve revenue collection.

Senior Economic Advisor to the President, Moses Kuria, clarified that the directive applies to all PSPs, including mobile money services, banks, and other financial institutions.

 “My attention has been drawn to media reports that my comments on Virtual ETRs at the KRA Summit yesterday were directed at MPESA only. This is erroneous as I meant all Payment Service Providers including Telcos and Banks. It’s an industry issue,” Mr Kuria noted.

This decision has sparked discussions among stakeholders, particularly regarding its potential impact on charitable organizations and individuals using digital platforms for fundraising.

The government’s move to implement ETRs for all PSPs is expected to have significant implications for the financial technology (fintech) sector in Kenya, which has witnessed rapid growth in recent years.

With over 35 licensed PSPs operating in the country, the new policy could have far-reaching effects on their operations and business models.

Data Integrated Ltd, Pesapal, Africa’s Talking, Jenga, Sapama Cash, and Jambo Pay are among the many PSPs operating in Kenya.

While the government has outlined its intentions, questions remain about how the ETR system will be implemented, especially in cases involving charitable donations and fundraising activities.

The Income Tax Act in Kenya provides tax exemptions for organizations engaged in charitable activities, but it is unclear how the new policy will address these exemptions in the context of digital payments.

The Central Bank of Kenya (CBK) offers various licenses for PSPs based on the specific services they intend to offer.

For instance, the Electronic Retail Transfer License allows companies to process retail payments up to a certain limit, and Airtel Money is an example of such a service.

The Payment System License grants companies the highest level of control over payment infrastructure, enabling them to facilitate transfers and own the payment system. Pesalink is a prominent example of a payment system operator.

Additionally, there are licenses for issuing electronic money (e-money), which is digital currency backed by fiat currency. The Payment Institution License allows companies to issue e-money for various purposes, while the Limited-Purpose e-Money Issuer License is specifically for small-value transactions.

Finally, the Payment Instrument License authorizes companies to operate payment instruments or systems that facilitate transactions between payers and beneficiaries. PesaPal is an example of a payment instrument.

As the implementation date for the ETR policy approaches, stakeholders are closely monitoring developments and awaiting further details from the government regarding the specific requirements and guidelines that will govern the use of ETRs by PSPs.

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