- The report said the firms are evading tax through under-declaration or non-declaration of income
- Private security companies say the salary directive is illegal
Image: FILE
Top private security companies have been accused of denying the government Sh14.6 billion revenue through tax evasion.
This is according to a report conducted by the Kenya Revenue Authority between 2021 and 2023.
The report said the firms are evading tax through under-declaration or non-declaration of income, tax fraud, dishonest tax reporting and overstating deductions.
In the report, a comparison of payroll records showed a huge variance between the actual number of employees on the payroll and those declared on the iTax return.
This translates to unpaid PAYE for the period under review.
The report revealed that some of the companies fraudulently claimed more purchases on VAT3 than the corresponding sales declared by suppliers.
“The taxpayers claimed fictitious purchases and VAT attributable to the purchases amounting to the fictitious VAT claimed ought to be disallowed,” it reads.
This is part of the reason the government is pushing the companies to pay their guards a minimum salary of Sh30,000, an official aware of the plans said.
"The directive will make it mandatory for the companies to pay taxes as required by law and avoid hiding under the bracket of low pay," the official said.
Confidential documents say the companies have been receiving huge amounts of money for the services they provide but are still underpaying their guards.
Private Security Regulatory Authority and the companies are currently on a deadlock over the move to increase the basic salary.
“A review of the taxpayer purchases claimed on VAT3 returns from different suppliers shows that taxpayer fraudulently claimed more purchases on VAT3 than the corresponding sales declared by suppliers by Sh7.4 million for the period between 2016 and 2021,” says the report.
In one company between March 2015 and February 2020, nine bank accounts received a cumulative amount of Sh40.4 million in the form of cash, cheque and RTGs deposits and inward transfers.
The company did not declare the entire amount in their annual tax returns resulting in loss of revenue.
“Based on the findings and issues established, we recommend the report be forwarded to DTD to carry out an in-depth audit on the aforementioned companies and recover all requisite taxes due including interest and penalties after assessments of the companies' incomes earned in the country,” the report says.
The report says one company operated more than 110 accounts in various financial institutions that also happen to be their clients.
An analysis of 13 bank accounts says the company under declared Income Tax and VAT turnovers for 2014/2015 and 2015/2016 financial years.
It is therefore suspected that the company also under-declared its turnovers given that only 13 of the 110 accounts were analysed.
Another company is accused of investing in a subsidiary company in Mauritius, a country traditionally considered to be a corporate tax haven.
An analysis done on nine of the company's 16 bank accounts revealed under-declared income tax turnover of Sh562.6 million for the years 2018, 2019 and 2020.
The firms have dismissed a directive to increase their guards' salaries.
In a joint press statement, the Kenya Security Industry Association and Protective and Safety Association of Kenya said the directive was illegal.
They said the directive ought to have been gazetted by Labour Cabinet Secretary Florence Bore, before it is enforced.
“Accordingly, only the Cabinet Secretary for Labour and Social Protection is empowered by law to publish wage orders setting out minimum terms of conditions of employment and only through the Kenya Gazette,” the associations said.
PSAR director general Fazul Mahamed gave a February 5 ultimatum for the salary directive.
In the directive guards in Nairobi are to be paid Sh30,000 and Sh27,000 for those in metropolitan areas.
Currently, the minimum pay for daytime security officers is Sh15,201.65 and Sh16,959 for night-time security officers.
Bore on Friday disowned the directive, saying her ministry cannot validate it.
She said this is pending the hearing and determination of a case currently at the Employment and Labour Relations Court in Nairobi.
Bore said the applicable minimum wage remains operational.
The associations have urged Interior Cabinet Secretary Kithure Kindiki to intervene.