Revenue collection agencies in the five-nation East African Community plan to develop a framework to share intelligence real time.
This is in a bid to combat rising cases of tax evasion through cross-border trade, with technical help from the World Bank.
Commissioners of tax investigations and enforcement from Kenya, Tanzania, Uganda, Rwanda and Burundi on Friday said they are working on a mechanism to share intelligence on possible taxation fraud.
“When we share information and intelligence real time, we will be more effective in detecting and deterring fraud,” acting commissioner for investigations and enforcements at the Kenya Revenue Authority David Yego said in Nairobi on the sidelines of the two-day meeting ending today.
“Our main objective is to rid the region of tax crimes and achieve higher revenue collection.”
Revenue leakages occur mainly through misdeclaration and undervaluation of imports by traders to pay less tax or get exempted from paying duty, and diversion of goods in transit, Yego said.
Transfer pricing is another key area, with most firms in the country rapidly expanding into the EAC bloc.
“When we get the information late, then chasing about fraudsters becomes a little tricky. We will overcome the challenge by sharing information real time,” Yego said.
Kenya in February signed a global taxation treaty enabling the KRA to access information on foreign firms with operations in the country.
The signing of the convention under the 28-member Organisation for Economic Co-operation Development, which includes the US and the European Union, was in a bid to reduce revenue leakage through transfer pricing.
The taxman said in May last year it had also set up an International Tax Office to monitor cross-border transactions by multinationals.
Under the Tax Procedures Act, the KRA has powers to audit, investigate and punish cases of transfer pricing.
“What we lack in the region to combat tax evasion is capacity in terms of intelligence and skills,” Yego said.
“The challenge is how do we get skills to detect quite early a fraud that‘s developing and be able to take action before it is actualised. Intelligence for us is the key.”
The taxman intensified audits on corporates last fiscal year, having discovered more than Sh25 billion in potential taxes from about 60 multinationals that had from 2008 used transfer pricing to declare losses when they had made profits.
Transfer pricing happens when multinationals sell to their parent or subsidiaries abroad at lower prices, thus denying KRA revenues.