Heads roll at KRA over Mumias ethanol exportation scam

Heads have started rolling at the Kenya Revenue Authority (KRA) a day after The Standard reported an ethanol scam at Mumias Sugar company. The staff is said to have colluded with employees at the troubled miller to pull an ethanol export scam that has exposed the taxman to tax leakages.

KRA Commissioner General John Njiraini said yesterday he had suspended the staff member based in Mumias who was responsible at the time the scandal happened. KRA also said it was scrutinising actions of other staff at its head office connected to the matter.

The taxman said it had noted the expose carried in The Standard newspaper that highlighted the malpractices in the handling of ethanol sales at the miller.

“Following the disclosure of the anomalies, further investigations have been instituted to establish accountability by KRA staff and the appropriate course of action to be taken. In the meantime, the staff member who had primary responsibility at Mumias at the time when the omissions occurred has been suspended from duty,” KRA said in a paid notice.

KRA further noted that all its staff directly connected with the matter shall be sent on compulsory leave to pave way for transparent investigations.

But the action may be coming a little too late since the miller is already in dire financial straits and is counting on the Government to rescue it from total collapse. On Tuesday, The Business Beat, a business magazine published in The Standard uncovered flawed operations at Mumias Sugar Company through which some of the miller’s employees have been colluding with rogue Kenya Revenue Authority (KRA) officials to defraud KRA tax revenue and deny the company its dues by under-declaring the quantities of ethanol for export and issuance of falsified allocation letters.

KRA says it carried out its investigation at Mumias in April to ascertain that export operations were properly handled.

 “The exercise disclosed material inconsistencies in sales and shipment documentation record keeping. Arising from this exercise, significant tax assessments have been raised and follow up action to collect is in progress,” Njiraini said.

KRA says its investigations also identified weaknesses in operational procedures, relating to the control of ethanol exports and documentation, including the absence of regular reconciliation between sales and shipping records.

The taxman added that it is now working with other law enforcement agencies, including the Ethics and Anti-Corruption Commission to deal with tax leakages.

Evidence-gathering

The scam has created a big hole in the sugar miller’s only viable business line, leading to questions about whether the company’s already ‘sinking’ ship will be strong enough to withstand the latest scandal, estimated to have cost it hundreds of millions in lost revenues.

Mumias has a distillery with capacity to produce 22 million litres of ethanol annually and was one of the first millers in the country to venture into ethanol production as part of a diversification plan meant to secure its future, as Kenya prepared to open its sugar market to external competition.

The miller sent six managers packing after the scandal erupted two months ago, joining over 52 staff members who have either been sacked or suspended following a series of scandals at Mumias Sugar.

The managers were accused of colluding with local buyers and a KRA customs officer to fake documents and divert ethanol destined for Uganda and Tanzania into the domestic market.

Our team also watched videos and listened to telephone conversations captured as part of the evidence-gathering process to nab the cartel, in which some officials are heard plotting how to squeeze bribes from a Ugandan businessman who was in the country to buy ethanol.