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State to lose Sh200b if new e-tax system is cancelled

BUSINESS
By Daniel Psirmoi | October 3rd 2016
The Government stands to lose over Sh200 billion revenue, if Parliament cancels implementation of a new e-tax system, cautioned an official from the tax authority.PHOTO: COURTESY

The Government stands to lose over Sh200 billion revenue, if Parliament cancels implementation of a new e-tax system, cautioned an official from the tax authority.

Members of the Parliamentary Investment Committee, who are investigating how Kenya Revenue Authority (KRA) awarded a Swiss company Sh17.7 billion Excisable Goods Management System (EGMS) tender, heard that the new application has helped seal past revenue leakages.

While making submissions before MPs, KRA’s Head of Marketing Surveillance Caxton Masudi, said the new system apart from sealing tax loopholes, will help combat illicit trade and enforce tax compliance.

“From the time we started applying the EGMS, we have significantly reversed the downward trend of excise duty revenue. If this committee cancels the implementation of the system, KRA stands to lose Sh200 billion in taxes,” Masudi told the Eldas MP Adan Keynan led team.

The new system was meant to enable KRA to monitor output of locally manufactured, fast-moving, consumer goods as well as curb points of loss.

EGMS system involves stamping each unit produced from manufacture lines to enhance compliance to payment of excise duty.

The new system has been resisted by industry players, with giant soft drinks manufacturer Coca-Cola  threatening to relocate its plants to neighbouring countries, if the taxman insists on implementing the system.

Coca-Cola has been categorical in their opposition to the new system, explaining that it would be forced to pay the Swiss Company between Sh8 billion and Sh11 billion annually, as a result of Sh1.50 stamp duty it is required to apply on every bottle of water, juice and soda.

But Masudi in his submission disputed the figures issued by the multi-national drink maker, noting that the committee may have been misled, by the data submitted by the Kenya Association Manufactures (KAM).

NEGOTIATED CONTRACT

“The figures presented by Coca-Cola to the PIC are substantially higher than the declarations it made to KRA,” said the KRA official, who led the team that negotiated the contract.

He added; “According to our records, obtained from the declarations made by the company in their tax returns, the total consumption of soft drinks stands at 550 million litres annually, for which about Sh1 billion worth of stamps would be required, and not over Sh8 billion as given,” pointed out Masudi, the chairman of the contract negotiations committee.

Consumers Federation of Kenya (Cofek) Secretary General Stephen Mutoro, who earlier appeared before the committee, in his presentation said KRA Commissioner-General John Njiraini should bear responsibility for irregularly awarding the multi-billion shilling contract.

Mr Mutoro said the deal with Swiss firm, SICPA Security Solutions SA, for the printing of Excise Duty stamps on goods sold in the country, doesn’t represent value for taxpayers.

“It’s a scandal in the making. Its’ against consumer interests as it is meant to escalate costs of consumer goods, while denying Government the much-needed revenue. It must be stopped,” he said.

“The purported legal framework enabling the EGMS is inconsistent with the Constitution. The direct procurement by KRA and failure to allow for competitive bidding and procurement unmasks the scandal that must be fully blamed on KRA and Treasury,” added Mutoro, who called for Njiraini’s resignation. The National Assembly committee is investigating whether or not the contract was single-sourced by KRA.

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