Ouko unearths Sh17b hole at KRA as tax cash hidden

Auditor General Edward Ouko when he appeared before the Senate Public Accounts Committee. [Boniface Okendo/Standard]

Auditor General Edward Ouko has unearthed a Sh17 billion hole at Kenya Revenue Authority (KRA) in collected taxes that were never handed over to the National Treasury.

Receipts from most revenue streams were grossly understated, according to the damning report of the audit covering 2016 but whose compilation was completed last November.

At the close of the audit, tax arrears had cumulatively soared to Sh185 billion, which includes claims that have been contested in court but whose determination is pending.

Income from the Traffic Department and indirect taxes on local goods were however overstated, highlighting the tax agency's internal weakness in reconciling its own books of account.

KRA could not explain how Sh1 billion remained “in transit” until the end of the financial year, yet under normal circumstances, cash is delivered on the same day.

“I believe the evidence obtained is sufficient and appropriate to provide a basis for my qualified audit opinion,” Mr Ouko said.

A qualified opinion is given when the auditor is not satisfied with explanations given or documents intended to support receipts or expenditures.

The tax agency joins several other State agencies and ministries whose expenditures have been questioned amid concerns of looting of taxpayers’ money.

Possible leaks

The tax collector would also be concerned about the possible leaks highlighted, given that it often falls short of targets set by the National Treasury, which is in a delicate balancing act on growing cash demands amid a swelling national budget.

It is however possible KRA has since provided answers to Ouko’s queries. But it had not done so at the time the report was compiled.

Among the revenue streams where huge gaps were reported were excise duty stamps – the small stickers affixed to most alcoholic drinks as well as airtime and cigarette packs.

Nearly Sh1.2 billion was never banked despite KRA booking in its own accounts Sh145 billion as excise duty, which is payable in advance.

Manufacturers of excisable products buy the stickers before production, meaning transactions should be straightforward as they do not involve any calculations.

 

“However, verification and analysis of excise duty receipts remitted to the Central Bank of Kenya account indicate aggregate collections during the 2015/16 year amounted to Sh143.8 billion,” says the Auditor General in his report.

And more than Sh3.3 billion paid by individual and corporate taxpayers could not be traced.

Ouko reported that Sh315.2 billion was received as Pay As You Earn – the monthly taxation on workers’ wages – but only Sh313 billion was sent to the exchequer.

No explanation was given for the variations since KRA is required to transfer all workers’ income taxes to the State for which it is an agent.

Companies also paid Sh252.7 billion in income taxes but the transferred amount was short by Sh1.5 billion.

Suspect transaction

Ouko has also questioned a suspect transaction where allocations from Treasury intended for refunding traders was booked as collected revenues.

KRA used Sh545.6 million to reimburse traders as import and excise duty refunds out of the Sh2.7 billion allocated.

Transaction details on the booking of the unspent balance under the Customs Department was flagged as it had the effect of overstating the revenues collected by KRA.

“The reason for transferring the unspent balances to National Bank of Kenya instead of the exchequer account at the Central Bank of Kenya has not been provided,” the audit report read.

Lacked systems

Some of the questions raised date as far back as 2005, when KRA lacked systems to track transit cargo. Traders exploited this weakness to import goods by pretending the cargo was meant for neighbouring countries.

Importers were previously given security bonds, which would be redeemed at the exit points, such as at the Malaba border, after the goods had crossed the border points.

Ouko estimates that since some security bonds were never cashed; over Sh1.5 billion may have been lost in foregone import duties due to dumping of transit goods.

KRA did not provide Ouko with sufficient information on the progress made in recouping monies owed by the companies – including Nakumatt Supermarkets, which has since run into trouble.

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