Wealthy Kenyans and foreign
contractors are evading billions in
taxes by moving cash offshore and
fleeing the country, exploiting gaping
loopholes in Kenya’s tax enforcement
system, a damning report by Auditor General Nancy Gathungu has
revealed.
The report, part of the African
Union Regional Coordinated Audit
on Illicit Financial Flows (IFFs), exposes shocking weaknesses in Kenya’s
ability to pursue tax cheats beyond
its borders, recover unpaid revenues,
and curb rampant fraud in high-risk
sectors like construction, real estate,
and foreign-funded projects.
Gathungu’s audit found that once
taxpayers—especially foreign contractors—skip the country without
declaring or paying dues, the Kenya Revenue Authority (KRA) has no
mechanism to track or recover the
funds.
“There is no collection system in
place to pursue a taxpayer beyond
Kenya’s borders when they have not
declared and paid their taxes in full,”
Gathungu stated, citing fresh evidence
from tax assessments on foreign firms
contracted for road construction who
disappeared without remitting taxes.
Zeroing in on foreign contractors
working on publicly funded infrastructure projects, Gathungu reveals
that some firms secured approval for
inflated costs—almost equivalent to
the contract value—raising red flags
about the commercial viability of
these ventures.
The Kenya Revenue
Authority (KRA), despite conducting
post-default audits, has been unable
to enforce timely tax recovery due to
delayed investigations and ineffective
cross-border coordination.
Other than the construction firms,
the report also reveals that, there inadequate regulations to govern sectors prone to illicit financial flows.
The audit warns that these sectors
remain largely unsupervised, creating
fertile ground for capital flight, tax
evasion, and money laundering.
“These sectors include real estate
agencies, money remittance providers,
money network operators, savings
and credit cooperatives, casinos, the
legal sector and car dealerships, as
well as nonprofit organisations,” the
report reads in part.
Further the findings also show that
tax-exempt projects have also become
a major point of leakage.
Gathungu says that the fragmented administrative setup and lack of a
centralized system to manage tax exemptions has seen excessive imports
of duty-free items and imports that
should have been sourced locally.
“Cases of excessive imports of
tax-exempt items and imports of
items intended for local purchase
have been identified. This lack of collaboration stems from the absence of
an integrated system, which hinders
immediate reconciliations and the
removal of items from master lists,”
the Auditor General said.
The public finance oversight body
warns that Kenya is losing billions
in unpaid taxes due to weak enforcement, poor inter-agency collaboration, and outdated laws.
“Kenya’s tax authorities lack a
mechanism to identify transactions
where outbound transfers are disguised as payments for purposes other than the remuneration of foreign
staff,” said Gathungu.
Additionally, while the Kenya
Immigration Department maintains
a register of all foreign nationals, including their activities and declared
remuneration in the country, this
information is not shared with tax
authorities.
“An examination of tax returns
and self-declarations by taxpayers
revealed that some foreign entities
operating in the country paid their
employees in their countries of origin
without subjecting these salaries to
Kenyan tax regulations,” Gathungu
said.
