How sugar barons tear KRA invoices to hide their trail

The hand of sugar cartels in the taxman’s pockets shows how brazen the most notorious racket has become that they could rip out invoices to cheat the Kenya Revenue Authority of millions.

The Auditor General's report shows that sugar which docked in the Kisumu port was more than what was declared at the station offices.

Vessels keep blue books which have the quantity of their cargo but when they docked, they apparently filled in lower quantities allowing 825 metric tonnes of sugar worth Sh17.1 million to be sneaked in without taxes.

When auditors sought the various entry folders they found that several invoices were simply ripped off to conceal the racket.

“As a result it was not possible to ascertain that duty on imported sugar with FOB value of Sh480.2 million was correctly declared, assessed or collected,” Edward Ouko said in the taxman’s review for 2015/16 financial year.

At Busia, the licences issued by the Kenya Sugar Board were to import as much sugar as one wanted, no one adhered to quotas.

“Sugar import permits issued by Kenya Sugar Board were not properly authenticated leading to excess importation of sugar over and above the authorised quotas from East Africa Community countries,” said Mr Ouko.

As a result, import duty amounting to Sh26.4 million was not collected.

The level of impropriety in and out of KRA may have been compounded last year when imports increased by 196 per cent compared to the previous year. This was as traders rushed to ship in duty-free commodity to bridge local deficit.

In Malaba, despite booking import entries of Sh66.9 million, some were later cancelled without replacement pointing to inside leaking of state coffers.

State protection of local industry and the huge country deficit has made illicit trade in sugar very lucrative since they can avoid duty and sell the cheap imports at very high local margins.

Kenya produces about 600,000 tonnes of sugar a year, compared with an annual consumption of 870,000 tonnes.

The beer and spirit sector has also been curating their own way to skim money off KRA by pretending to export the alcohol.

According to the Auditor General, a beer and spirit consignment with a Sh65.4 million bond value was supposed to have been exported. However, there were no exit reports at border points meaning they had not left the country.

In the Simba system, there was an attempt to put in numbers but this differed with the registers at the border posts.

In particular, Sh32.5 million in excise duty may have been lost in Busia since the records at the outwards register differed with the export entries at Agro Chemical and Food Company Ltd in Muhoroni.

The business of diverting ethanol from export markets is becoming more daring since KRA does not tax ethanol meant for export at the same rate as local products to ensure local firms are competitive in the regional market.

The racketeers have been smuggling them back from across the border (Tanzania charges Sh60 a litre, less than Kenya's Sh200).

However, the players are seemingly keeping the liquor in Kenya instead of enduring the hassle of exportation and smuggling the spirits back.

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