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KRA probes firms over Sh1.4b fraud

By Cyrus Ombati | March 18th 2020

Taxpayers queue to file their returns at a Kenya Revenue Authority service centre in Mombasa last year. The taxman says VAT fraud led to a dip in collections in 2019. [File, Standard]

The taxman is investigating 13 companies alleged to have submitted false VAT invoicing valued at Sh1.4 billion.

The investigations commenced following a decline in VAT collections in the second quarter of the current financial year between September and December last year. 

Kenya Revenue Authority Commissioner for Investigations and Enforcement David Yego said they embarked on verifying VAT credits for select high-risk taxpayers with credit balances as at December 31, 2019.

The verification exercise was carried out in February, focusing on taxpayers cutting across various sectors of the economy.

Findings revealed that some traders had come up with a criminal enterprise involving use of duplicate or forged invoices and import entries, inflation of claimed input VAT as well as claiming of non-qualifying items.

Others were involved in non-declaration and under-declaration of sales by suppliers and abuse of credit and debit notes.

The investigation indicated that some taxpayers connived with their suppliers to falsify records declared.

“Further analysis down the trail reveals serious abuse of the regimes to confer tax benefit through fraudulent means whereby different levels of suppliers claim either from individuals declaring sales or purchases or from suppliers not declaring their corresponding output,” said Mr Yego.

He also said some individual taxpayers were allocated VAT obligations without their knowledge. Their PINs were then used to issue invoices and ETR receipts, claimed as purchases of the goods and services, but they fail to declare corresponding output.

The tax implication of such a scenario is that it pushes the VAT obligation to the individual person whose PIN has been used without his consent, with the beneficiary of the scheme being the trader who seems compliant on the face of record.

“KRA has commenced indepth investigation on identified taxpayers and appropriate administrative measures have been instituted to seal the loopholes exploited by these unscrupulous traders,” said the commissioner.

The taxman said the identified companies and directors will be taken to court on various charges, including fraud and failure to pay taxes, once the Director of Public Prosecutions gives the nod.

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