KRA investigates 13 firms over Sh1.4 billion tax fraud

In Summary

• Others were involved in; non-declaration and under declaration of sales by suppliers, abuse of credit note and debit notes, non-adherence to the tax points and apportionment of input VAT.

The KRA headquarters at the Times Towers.
The KRA headquarters at the Times Towers.
Image: FILE

KRA is investigating 13 companies alleged of VAT mis-invoicing with a revenue implication estimated at KShs. 1.4 billion.

The investigations commenced following the decline in VAT collections in the second quarter of Financial Year 2019-20.

KRA embarked on an exercise of verifying VAT credits for select high-risk taxpayers with credit balances as at December 31.

The verification exercise took place in February 2020, focusing on taxpayers cutting across various sectors of the economy.

Findings revealed that some traders had come up with a criminal enterprise involving use of duplicate and/or forged invoices and import entries, inflation of claimed input VAT as well as claiming of non-qualifying items.

Others were involved in; non-declaration and under declaration of sales by suppliers, abuse of credit note and debit notes, non-adherence to the tax points and apportionment of input VAT.

Investigation on the Value Chain Supply (Input/Output Analysis) for the same period indicates that some of the taxpayers have connived with their suppliers and further to suppliers of their suppliers to indicate that all the records and the physical invoices revealed no variances in the Inputs VAT declared by the taxpayer.

However further analysis down the trail reveals serious abuse of the regimes to confer tax benefit through fraudulent means whereby different levels of suppliers claim either from Individuals declaring sales and purchases or from suppliers not declaring their corresponding output.

The root cause is the registration of individual taxpayers who are allocated VAT obligations without their knowledge. Most of these individuals purportedly issue invoices and ETR receipts, claimed as purchases of the goods & services but they fail to declare corresponding output.

The tax implication of such a scenario is that it pushes the VAT obligation to the individual person whose PIN has been used without his consent.

The ultimate beneficiary of the scheme is the trader who seems compliant on the face of record. Further investigations are ongoing concerning use of PIN of individual suppliers to establish if it is connivance or identity theft.

KRA has commenced in depth investigation on identified taxpayers and appropriate administrative measures have been instituted to seal the loop holes exploited by these unscrupulous traders.

Persons whose PINs have been used with VAT obligations and are non-filers shall be deregistered from VAT obligations and those perpetuating the evasion shall have their Tax Compliance Certificates cancelled.

Subject to concurrence by the Office of the Director of Public Prosecutions, the identified companies and directors will be arraigned.

KRA has warned that internal players facilitating the fraudsters shall be unearthed and prosecuted alongside the tax cheats.