Mumias Sugar factory. KRA has recalled its resident customs officer based at the company. PHOTO | FILE
What you need to know:
The KRA official has been recalled to Nairobi, but it is not clear yet whether any disciplinary action has been taken against him.
The official is expected to shed light on the ongoing investigations in which top managers at the factory are said to have diverted ethanol meant for export into the local market, thereby evading millions of shillings in tax.
The taxman has recalled the resident customs officer based at the Mumias Sugar Company following an ethanol export scam through which the revenue agency lost millions of shillings.
The Kenya Revenue Authority (KRA) official is expected to shed light on the ongoing investigations in which top managers at the factory are said to have diverted ethanol meant for export into the local market, thereby evading millions of shillings in tax.
Export goods ordinarily attract concessionary or no tax as part of government policy to encourage growth of manufacturing.
Diverted goods would therefore ordinarily be cheaper than those that have been subjected to full taxation.
Ethanol sold locally is charged duty at a rate of Sh139 per litre while no tax is charged on ethanol meant for export, making the diversion a lucrative business.
A litre of ethanol destined for export sells at Sh93 while a similar quantity sold in the domestic market is priced at Sh232. The KRA official has been recalled to Nairobi, but it is not clear yet whether any disciplinary action has been taken against him.
KRA has been conducting audits in Mumias since last month when claims of the ethanol diversion were first reported.
KRA is yet to send a resident customs officer to replace the recalled official.
The managers are accused of colluding with local buyers and customs officer to fake documents and divert ethanol destined for Uganda and Tanzania into the domestic market.
Company chairman Dan Ameyo said investigations are still going on to establish how the managers allegedly conspired with the customs official in the ethanol theft.
“We are still conducting a probe into the ethanol scam and we will take necessary action on those involved once the process is complete,” said Mr Ameyo in an interview.
The management said it has intensified surveillance, with the trucks transporting the consignment guarded at all stages to avoid further diversion.
Mumias has a distillery with the capacity to produce 22 million litres of ethanol annually. It was one of the first millers 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 firm earned Sh1.03 billion from the ethanol business in the year to June 30, 2014, according to its annual financial report.
The company has been producing about 15 million litres of ethanol annually against installed capacity of 22 million litres.
Mumias’ ability to produce ethanol has, however, suffered in recent months as the company’s sugar milling declined because of acute shortage of raw cane.
The company reported a bigger first-half loss from a year ago, citing lower profit margins as well as a prolonged shutdown.
The cash-strapped miller, which received a bailout from the government at the end of January, said its loss widened to Sh2.08 billion from a restated loss of Sh407.4 million a year earlier.
Article updated May 25 to correct the duty rate charged per litre of ethanol and, consequently, the local price of ethanol per litre which had been incorrectly stated as Sh220 and Sh313 respectively.
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