State must win the war on tax evasion lest it drains coffers

The Sh9 billion protracted tax row between the government and Keroche Breweries Ltd has elicited various responses in recent weeks.

The matter has been highly publicised since the ruling by the Tax Appeals Tribunal regarding disputes filed in 2017.

Away from the Keroche case, tax evasion affects every citizen - a problem that is known as the tragedy of the commons.

Someone thinks he or she is committing a victimless crime as no one person who is easily identifiable gets harmed.

This perception is of course flawed. Ordinary citizens are the victims. Tax evasion is estimated to cost the country over Sh500 billion a year, bringing Kenya’s deficit to 6.2 per cent at the end of 2019 up from 5.9 per cent in 2018.

Unpaid taxes mean roads remain bad; schools are unbuilt and healthcare programmes unfunded. It also means children’s school lunches don’t get funded; electricity subsidies removed and city infrastructure remain broken.

That is why President Uhuru Kenyatta’s government is hunting tax evaders and ensuring everyone contributes to the country’s finances according to their legal obligations.

The government has also been strengthening the Kenya Revenue Authority (KRA). At the start of this year, some KRA managers were sacked, alongside six others who failed lifestyle audit. Consequently, their contracts weren’t renewed.

A further 80 others are being investigated by the Ethics and Anti-Corruption Commission. Many see President Kenyatta as having prioritised what the famed political scientist Benjamin Constant called “guarding the guardians of democracy.”

Revenue targets

While little criticism was levied against KRA for underperforming in the past, the Head of State has underscored its need to meet revenue targets set by the government.

This scrutiny has yielded concrete results, with the end of 2019 bringing over 800 individuals and entities before the courts. The taxman has also ramped up international cooperation with other East African nations, given the tendency of tax evaders to exploit lax bank regulations to stash their money elsewhere in the region.

The State is also been employing intricate intelligence work to track down and persecute those who don’t pay their taxes.

The number of tax evaders, as well as clever legal and illegal tactics employed by them, means these tactics are required if the battle is to be won as Head of Intelligence and Strategic Operations at KRA Terra Saidimu stated recently.

“Several Kenyans have benefited from this kitty and we have widened our net to investigate tax cheats by sending out tax intelligence teams to gather sales data,” she observed.

The State has also done more to combat “tax evaders”. Often thought of as simply someone who does not pay their fair share of taxes, the bracket includes those who misrepresent business expenses, alter their books to undervalue imported goods or fail to deduct withholding tax.

The Tax and Procedures Act of 2015 helped make significant progress where many others had failed before, by anchoring these issues into legislation. This has been key in discouraging future evaders as it not only requires them to pay their taxes but also the penalty as stipulated in the law.

It also enables such individuals to be prosecuted - creating a significant new deterrent. In the onslaught by authorities against tax evaders, nobody should be above the law. We have a country to build and future generations to bequeath a vibrant economy.

The writer is a lawyer