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STEALING OUR MONEY

War on graft targets tax evasion

Americans imprisoned Al Capone on charges of tax evasion. We should do the same with crooks

In Summary

• In 2019-20, KRA profiled 1,309 individuals and companies and identified tax evasion schemes that could have cost the government approximately Sh259 billion in revenue. 

• In this financial year, 10 tax evasion cases involving 16 individuals have been successfully concluded, amounting to Sh156 million. 

KRA headquarters at Times Towers
TAX CASE: KRA headquarters at Times Towers
Image: FILE

In the early 1920s, there was a notorious gangster on the Southside of Chicago called Alphonse Gabriel Capone, better known as Al Capone. Capone was a ruthless gangster who left a trail of bodies all over Chicago. Despite everybody knowing Capone was responsible for the violence and deaths, the feds could not make a case against him stick. In fact, in 1930, Al Capone was dubbed 'Public enemy number one' while his brother Ralph Capone was 'Public enemy number three.”

When all efforts to hold him liable for the killings failed, the feds decided to go after him for tax evasion. Al Capone had repeatedly declared that he had no taxable income yet at the height of his empire he was taking home up to Sh150 billion yearly at today’s rates. Eventually, Al Capone was indicted on 22 counts of federal tax evasion and sentenced to 11 years in prison in August 1931.

When the Commissioner General of KRA embarked on an ambitious campaign against tax evaders, there was praise and condemnation in equal measure. There were those who saw a political hand in all of it, others saw business rivalry at play. Then there were the rest of us who saw it for what it was – a war against a scourge that takes away up to 15 per cent of our tax revenue.

 

The money lost in tax evasion schemes would be more than enough to give counties what they need to accelerate the development of infrastructure and provision of critical services such as healthcare, agricultural extension services and waste management.

In 2019-20, KRA profiled 1,309 individuals and companies and identified tax evasion schemes that could have cost the government approximately Sh259 billion in revenue. In the same period under review, KRA intercepted various illicit products brought into the country worth Sh1.2 billion. This was made possible by the close coordination within the Multi-Agency Taskforce set up by the President to bring together all the agencies in the justice, law and order sector to bolster his war on graft.

In the period under review, 367 tax evasion cases worth Sh65.93 billion were filed. Of these, 303 were prosecuted for tax fraud, a performance rate of 51 per cent. KRA recovered Sh62.8 billion in revenue from tax evasion cases in the year under review. KRA also recovered Sh251,571,440 in revenue after investigating 145 county government suppliers.

By under-reporting the value of goods, importers are able to evade substantial customs duties or other taxes. The other major reason is money laundering where criminals or public officials seek to launder proceeds from crime (especially drug trafficking) and corruption.

In the current financial year, 10 tax evasion cases involving 16 individuals have been successfully concluded with a revenue implication of Sh156 million between July and now. Another 57 high-profile tax evasion cases are pending before courts of law amounting to a total of Sh63 billion.

The alcohol industry is quite notorious for tax evasion through various schemes, including reformulation of alcohol drinks without corresponding adjustments in tax payable. Some are known for establishing entirely separate bottling plants underneath the recognised facilities to avoid flow meters installed by KRA and therefore avoid paying taxes on these products altogether.

Another major source of tax evasion is trade misinvoicing. Trade misinvoicing is a method of moving money illicitly across borders that involves the deliberate falsification of the value, volume, and/or type of commodity in an international commercial transaction of goods or services by at least one party to the transaction.

By fraudulently manipulating the price, quantity, or quality of a good or service on an invoice submitted to customs, criminals can easily and quickly shift substantial sums of money across international borders.

 

The key reason for trade misinvoicing in Kenya is to directly evade duty and other taxes such as VAT on imported goods. By under-reporting the value of goods, importers are able to evade substantial customs duties or other taxes. The other major reason is money laundering where criminals or public officials seek to launder proceeds from crime (especially drug trafficking) and corruption.

Because of the complex nature and mix between organised crime and corruption in trade misinvoicing, KRA has and continues to work with its other MATT partners, especially the DCI, NIS and EACC to unearth these schemes and take corrective actions.

This collaboration has seen KRA net goods worth billions especially at our border towns and even godowns both in Mombasa and Nairobi. The installation of luggage and truck scanners at the ports of entry have also gone a long way in exposing these corrupt networks as products such as liquefied petroleum gases are often disguised as maize from the neighbouring countries, especially Tanzania.

MATT must be commended for its critical role not only in combating corruption but also in shoring up revenue collection for the country. Everyone should pay their fair share of taxes for the country to develop.