By MORRIS ARON
In April 2007, a team of budget experts seated on the fifth floor of Treasury Building made a decision that was to hurt businessmen — and the Government — for years to come. Their aim was simple: To net all the tax evaders and grow tax revenue for the Government and sieve the process through a double-gated checkpoint.
The plan backfired hardly a year into implementation — leading to the tax refund mess that is today.
The technocrats proposed that for any service or goods rendered, VAT was to be paid twice to KRA.
The buyer and the seller of the service or goods had to pay 16 per cent VAT and receive a certificate confirming the same.
With VAT money safe with KRA, it was then up to the businessmen to claim tax refunds after reconciliations were done by KRA.
Speaking in confidence, a highly placed source at KRA official told Business Weekly that everything worked well for a year — then things started going haywire.
“Due to the ineffective filing system at KRA and the heavy paper work that the arrangement required, it later emerged that officials at KRA officers, suppliers, tax auditors and tax agents colluded towards non-payment of tax,” said the source.
According to a number of sources who corroborated the story that has always be a scam under wraps, the syndicate was so vast and so intertwined in as many ways as the filing mess made it possible.
It was also as hard to trace and net the culprits as it was in verifying fake and genuine claims of tax refunds.
The syndicate involved activities mirroring double or non-entry of tax payments, printing of fake certificates and all that would make it impossible for any proper verification.
The scam also included those charged with remitting withholding tax.
According to information available, the bulk of the tax money that could not be ‘accounted for’ was approximately 60 per cent of government expenditure in the financial year 2008/2009.
It is estimated that close to Sh25 billion could not be accounted for from the system as a result of the development.
After KRA woke up to revelations that the system they had relied upon to increase revenue had resulted in the reverse, they hurriedly moved to cap the leaks.