KRA wins tax evasion scheme suit

The Tax Appeals Tribunal (TAT) has ruled in favour of the Kenya Revenue Authority (KRA) in a tax dispute case filed by Roshina Timber Mart Ltd. The firm was seeking orders to stop KRA from disallowing input VAT based on fictitious tax invoices from ghost traders, dubbed the 'missing traders' scheme.

The scheme was established to reduce a tax liability without the taxpayer making taxable supplies or the supplier of the goods being captured on the tax invoices used to deduct input VAT.

In a recent ruling, the tribunal held that the law places the burden of providing supporting documentation on the taxpayer, and in the absence of such, KRA is left with no option but to apply the law and assess the tax.

The tribunal said failure to keep, retain or maintain records is an offence under Section 93 of the Tax Procedures Act, 2015. "This means accepting the position advanced by Roshina Timber Mart and allowing input VAT recovery would amount to aiding criminal conduct," noted KRA.

The firm argued that it had no obligation or responsibility to trace the supplier and did not doubt the existence of suppliers who issued it with the invoices.

TAT said even if proof had been provided to show the supplies took place, KRA was still within its powers to establish whether the input VAT claimed by the firm was incurred for business purposes.