Top Kenyan executives face tax evasion probe

• The taxman is set to launch fresh assessments of big firms whose contribution to the consumption tax revenue stagnated in the year to June compared to double-digit growth in remittances from small and medium-sized firms.
• The large firms account for about 47 per cent of total tax collections, meaning that widespread non-compliance in this group of taxpayers can have a major impact on the government’s revenues.

Top executives face hefty fines as Kenya Revenue Authority moves to deal with fraud in collection of value added tax among large companies.                 

The taxman is set to launch fresh assessments of big firms whose contribution to the consumption tax revenue stagnated in the year to June compared to double-digit growth in remittances from small and medium-sized firms.

“Poor performance of VAT in large tax payers is the subject of internal evaluation to assess the effectiveness of strategies taken and to address possible compliance monitoring lapses,” said John Njiraini, KRA’s Commissioner-General, adding the tax agency has launched investigations.                 

But the Treasury last month empowered KRA to collect taxes and fines from corporate chiefs if their firms evade paying taxes, a move that will raise the stakes in tax fraud.                 

This means that directors and senior executives of tax-evading companies will now be held personally liable.                 

KRA has in the past relied heavily on corporate fines to deter tax evasion though the courts can commit individual offenders to several years in jail for various tax crimes.                 

The executives will now be liable to a one-off fine equivalent to 20 per cent of the principal owed to KRA and was not remitted to the taxman.

READ: Executives to face personal liability for corporate tax      

In addition, they can be fined two per cent of the value owed per month from the date of assessment.                

The taxman says manufacturers and exporters are the most notorious with regard to VAT, taking advantage of dealing in zero-rated goods to lodge fraudulent claims on the taxman.                

All exporters and manufacturers of zero-rated items such as processed milk, cooking gas, bread, maize flour, and computers are allowed to reclaim  their input tax from KRA.

“We are working on automating our systems and this will give us a real-time view of transactions that will curb manipulation of VAT,” said Pancrasius Nyaga, the head of Large Taxpayers Office at KRA.                 

He added that inadequate manpower at KRA, coupled with lack of automated systems has provided incentives for some firms to cheat.                 

The taxman conducts random assessments of up to 20 per cent of companies to assess compliance in a specific sector in a given year.                

This means that tax fraud can be detected years later, sparking legal battles with the offending firms who face hefty fines in addition to the principal.