President William Ruto, during the National Taxpayers Day, in Nairobi, noted a major tax evasion racket that involves rogue KRA officials and traders as he gave an ultimatum to the taxman to end the trend.
A major area is in excisable goods which the President noted the government is loosing approximately Sh7 billion to tax evaders, with Kenya selling about 2.9 billion excise stamps, instead of an estimated 10 billion to 12 billion.
“KRA must take positive steps to make the business environment favourable for traders and at the same time seal revenue leakages, leverage technology to efficiently manage border points and promote cross-border trade,” Ruto said.
He put Commissioner General Githii Mburu on notice saying he would "clear the mess"himself if the taxman fails to put his house in order.
This now sets the stage for a major clampdown on rogue players and an internal sweep on rogue officials said to aid illicit trade, internal sources indicate.
Illicit trade is estimated to cost the country an estimated Sh153 billion a year in lost taxes.
It also robs the state of resources needed for vital services, while the monies go to fund criminal enterprises, breeds corruption and finances extremism across the region, as the Anti-Counterfeit Authority puts it.
Yesterday, Stop Crime Kenya (StoCK), which has its secretariat at the Consumer Federation of Kenya (Cofek), said President Ruto’s condemnation of Kenya’s failing excise tax stamp system should herald a crackdown.
This is on counterfeiters and smugglers exploiting it to steal billions of shillings from the state.
StoCK is campaigning against the criminals who make a fortune smuggling and selling illicit goods.
“This is a damning indictment of our exorbitantly costly digital excise stamp system, which has been dogged by controversy and inefficiencies since its inception almost 10 years ago,” StoCK chairman and Cofek Secretary General Stephen Mutoro said.
Most dealings in excisable goods are reported to be in alcoholic drinks and cigarettes both from international markets and neighbouring countries, mainly Uganda.
A recent study by global consulting firm- Kantar Group indicated Uganda was a major source of illicit cigarettes in neighbouring countries, with 93 per cent of illicit cigarettes found in Kenya believed to originate from Uganda.
Excise stamps also covers bottled water, juices, and non-alcoholic drinks.
Local manufactures and retailers have previously blamed high taxation in Kenya for attracting cheaper imports and smuggling from neighbouring countries.
Border towns are notorious for trading in illicit and contrabands, where rogue players import cheaper goods from neighbouring countries through porous borders, evading taxes.
Some are affixed with excise stamps and find their way into major towns, including the city.
For instance, the cost of basic goods such as milk, flour, rice, and bread are on average between Sh20 and Sh50 cheaper in Uganda compared to Kenya.
Beer and cigarette prices are twice expensive in Kenya.
This presents an obvious incentive for smugglers to exploit our porous borders and sell goods bought more cheaply in Uganda to customers in Kenya, the Retail Trade Association of Kenya (Retrak) notes.
"While the government has put in place measures to curb illicit trade and tax evasion, the impact on the ground is minimal,” Retrak CEO Wambui Mbarire notes.
The Kenya Association of Manufacturers (KAM) had in September warned increased excise taxes will lead to a rise in the consumption of illicits , amid reduced production which will deny the government revenue.
The taxman has been counting on the Excisable Goods Management System (EGMS) to seal tax loopholes in excisable goods, which helped increase taxes from alcoholic drinks and cigarettes when it was first implemented in 2013.
This was from Sh700 million to above Sh5.6 billion annually.
In the first quarter of this year, KRA rolled out a new generation of excise stamps to curb counterfeiting and seal revenue leaks.
For the first time in history, the annual revenue collection hit and surpassed the two trillion mark in the last financial year ended July, defying the difficult economic environment brought about by Covid-19.
KRA Sh2.031 trillion against an original target of Sh1.882 trillion and two other upward revenue target revisions of Sh1.911 trillion, which was later revised to Sh1.976 trillion.
On Friday, Ruto said the authority is expected to raise at least Sh3 trillion by end of the next financial year, up from this year’s target of Sh2.142 trillion.
It is expected to double its collection in five years time, putting Commissioner General Githii Mburu and his team under pressure to seal leaks and raise more.
“We commit that we shall do our best towards optimising revenue mobilization and trade facilitation. We will ensure we carry our stakeholders and taxpayers together in this journey,” Mburu said.
