Is KRA finally finding its feet on fighting tax evasion?
By Jessica Anjalo
| October 27th 2016
It was quite an eye opener when leaked documents, made public in April, showed that Mossack Fonseca, a Panamanian law firm, had helped 14,000 clients worldwide create offshore accounts to conceal assets or dodge taxes.
In the eight weeks since the publication of the first articles by some 370 reporters in 76 countries, the impact of the revelations on the shadowy world of offshore finance was striking. I never had an interest on the subject, but thanks to Google, I keyed in “Tax Evasion Kenya” and the dropdown result was like reading a thriller novel.
Various articles from as far as the internet set foot in Kenya detailed the murky world of tax evasion in local sea and air ports.
In one blog, a man described what you would mistake for a quasi-mythical figure or a subject of countless ballads in the tax evasion narrative. Here he talked of a powerful man who had outlived authorities and accomplices alike, defying the implicit bargain of a life in illegal importation. He described how the said person had somewhat close to a final word when it came to clearing and forwarding at the port of Mombasa. Further, he alleged that the persona in his blog was in charge of container freight stations and the transportation of cargo by road across the East African region. He allegedly did all this without paying a cent in tax, and only bribing a few important individuals at the port.
Last February, the then Kenya Ports Authority (KPA) Managing Director Gichiri Ndua was sacked alongside other top officials over corruption allegations. Dozens of other officials were also transferred. Catherine Mturi-Wairi was appointed as acting MD in March and confirmed in July. These radical measures were taken on the recommendations by an inter-agency committee formed by President Uhuru Kenyatta to look at issues affecting the port.
A month later, three high-end vehicles imported from the UK were seized by KRA officials at the port; disguised as personal effects. The two Range Rovers and a Mercedes Benz were hidden among baby walkers and used mattresses, and would have passed on to Uganda without the payment of Sh8.5 million in taxes. Two months later, Police impounded a consignment of sugar worth over Sh11 Million. The sugar had originated from Egypt and was already on a lorry ready for transit.
Following the two incidents, Interpol was invited to assist in the crackdown at the port. Thirteen individuals, including officers from KPA, KRA and shipping lines involved in tax evasion scandals, have been charged so far. Just last week, two Range Rover cars valued at more than Sh24 million were seized at the port. The cars, hidden in a 40-foot container from the UK, had been declared as bicycles. The lost taxes would have amounted to more than Sh15 million. Later in September KRA deregistered 121 vehicles whose owners are said to have acquired fraudulent registration and evaded tax in the process.
While reading the stories on tax evasion in chronological order, what you realize is that from early this year, the colours of change are working their own new paintwork at Kenyan ports, leaving tax evasion syndicates exposed. The problem with tax evasion has always been that it involves high ranking individuals with loaded coffers at their disposal, which comes with an exhilarating touch of philanthropy. Those involved are willing to bribe to cut their own tax responsibility.
For customs officials, the bribes taken for clearing specific containers in Mombasa could be as much as a whole year’s salary. The fact that KRA has been going directly for the big fish is highly commendable and will prove effective. Several Chinese multinationals, for example, are under investigation by the Kenya Revenue Authority (KRA) over allegations of tax evasion that could run into billions of shillings.
In the past few weeks, three Chinese multinationals have clashed with the KRA over tax evasion, with two ending up in court. In a letter written on April 15, 2016, KRA says one popular Chinese firm could be asked to pay as much as Sh1.44 billion in unpaid corporation and withholding tax since 2011. That alone, is a mark of intent that should not go unnoticed.
Tax evasion is a universal and persistent problem worldwide and should be considered a potential problem everywhere. However, it hits developing countries the most. The value of taxes avoided is often close to the value of actual collections for major taxes. Meaning reining in on this racket would highly boost our revenue collection. Tax evasion creates deadweight loss on the economy, and undermines equity in taxation by shifting the burden in the direction of honest, socially responsible individuals and corporations.
By going directly for tax evaders, we are solving a big economic problem. The trickledown effect, eventually, will be felt even by that kiosk owner. With the current positive signs, we can only hope for better and give KRA a pat on the back while at it.
Jessica Anjalo is a Social, Political and Economic Commentator based in Nairobi.
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