Kenya: Kenya loses an estimated $1 billion (Sh87 billion) yearly through export under-invoicing when sellers deflate the true value of their exports and channel the difference to foreign accounts.
The lost revenue can build about three Thika Super highways. A new report by Washington-based research and advocacy organisation, Global Financial Integrity (GFI) says between 2002 and 2011, $9.64 billion (Sh870 billion) — half of Kenya’s current budget, flowed illegally out of the country due to trade misinvoicing.
This is the amount that the Kenya Revenue Authority (KRA) collected in the last financial year. More than $3.94 billion (Sh345 billion) also flowed illegally into the country due to trade misinvoicing while $13.58 billion (Sh1.2 trillion) in illicit capital flowed either into or out of the country due to trade misinvoicing.
Illicit inflows into Kenya over the period of the study came almost entirely from the under-reporting of imports. Although illicit outflows trumped illicit inflows for every year in question besides 2008, the $3.94 billion (Sh345 billion) in cumulative under-reported imports indicates a large amount of forgone tax revenue. Kenya’s existence of parallel domestic markets in foreign exchange also facilitates illicit flows through trade misinvoicing.
Average annual real GDP growth since 2004 has been well under six per cent, including a significant dip following post-election violence in 2007 into 2008. Good prospects appear on the horizon, however, with investment to support a boom in construction and Tullow Oil and its partner Africa Oil Corporation’s discovery of two wells in the northern part of the country in 2012, have all raised prospects for improved economic growth in the future. The GFI report also places Kenya the worst of the five countries in this study in the Failed States Index and second worst in the Corruption Perceptions Index.
A terrorist group al-Shabab attacked the Westgate Mall in Nairobi on September 22, 2013, killing more than 60 and injuring nearly 200. Since then, more terror attacks and threats have been recorded with most Western nations issuing travel advisories.
The economy is estimated to have lost $9.64 billion in potential domestic investment from export and import theft syndicates during the period covered in this study. It is estimated the State might have lost $3.92 billion in tax revenue resulting from these illicit outflows and from the $3.94 billion in illicit inflows.
Tariff rates
The report estimates that the Government of Kenya potentially lost tax and tariff revenues of $3.92 billion over the course of this study or an average of $435 million per year, based on official tax and tariff rates. The statutory corporate tax rate in Kenya is 30 per cent, the average simple mean tariff rate over the period where data is available is 12.93 per cent, and the VAT on imports is 16 per cent.
Given that cumulative government revenues reported to the IMF were approximately $44 billion (Sh3.8 trillion over the course of this study, the taxman’s total collection of government revenues would have been 8.9 per cent higher had there not been any trade cheats present since 2002.
The Standard Group Plc is a
multi-media organization with investments in media platforms spanning newspaper
print operations, television, radio broadcasting, digital and online services. The
Standard Group is recognized as a leading multi-media house in Kenya with a key
influence in matters of national and international interest.
join