KRA seeks simpler trade rules to stop tax evasion

Disparity of tax regimes and standards is another factor that leads importers to exploit loopholes along the Northern Corridor to evade tax.

“Importers have continued to exploit disparities in standards and tax regime within the region to conduct illicit activities,” Waweru said, adding that goods exported and the tax paid to the transit countries are smuggled back due to different excise tax rates among regional countries.

Recently, sources at KRA confirmed that the government was losing billions of shillings to tax cheats through dummy wines and spirits exports to neighbouring countries that end up in the local market.

Two months ago, the taxman launched an investigation against a leading manufacturer of industrial and methylated spirits for failure to remit over Sh200 million ($2.6 million) in excise duty.

KRA investigation department launched a probe into the scam, focusing on the porous border crossing points of Busia, Malaba, Chepkube and Suam.

“Our borders have stretches of unmanned land, sea and lakes which are continually exploited to bring in contraband goods,” Mr Waweru said, adding that the problem of the insecurity in most of these areas have exacerbated the problem.

Crucial information

The cartels that run the business employ hundreds of couriers to ferry back wines and spirits previously “exported” from Kenya to Uganda through the Busia and Malaba border points,, according to officials at KRA.

The smugglers exploit the tax differentials between the two countries.

In Uganda for instance, wines and spirits are subject to a 45 per cent duty while in Kenya, ad valorem rates of 65 per cent and 50 per cent are imposed on spirits and wines, respectively.

Used and non compliant vehicles for Kenya market are imported as Ugandan cargo and subsequently registered or smuggled back to Kenya, Mr Waweru said.

“Failure by revenue authority to exchange crucial information about the movement of the goods across the region has been exploited by unscrupulous importers force tax refunds and rebates under the pretext of exportation of the goods across borders in the region,” Mr Waweru said.

He said some importers mask their true identity.

They use paper companies and other nominees to mask their identity especially to conceal volumes of the trade, including illegal diversion of goods and smuggling.

Delays in cargo clearance by importers, Waweru said, was another challenge leading to compromise of some clearing procedures.