Swiss firm on the spot over tax job

The validity of a tax management systems contract that the Kenya Revenue Authority (KRA) awarded a Swiss firm was thrown into doubt Tuesday after a procurement oversight agency told Parliament that it was based on fraudulent documents.

The National Assembly’s Public Investments Committee (PIC) heard that SICPA Solutions SA Limited, the firm in the eye of the storm, was awarded the contract three years before it was cleared to do business in Kenya.

The Public Procurement Oversight Authority (PPOA) told MPs that KRA awarded SICPA Solutions the Excisable Goods Management Systems (EGMS) contract in May 9, 2010, long before the company was registered on May 9, 2013.

Maurice Juma, the PPOA director -general said that in an ideal situation where such vital information surfaces after the award of a contract, the tender should be subjected to debarment proceedings.

“Under the procurement law, the contract was processed through fraudulent means and it cannot be sustained,” Mr Juma said. PPOA is the government agency responsible for regulation of procurement systems.

KRA is on the spot for single sourcing the Sh17.7 billion e-tax job to SICPA, which has been accused of corrupting tax agencies in Brazil, Albania, Morocco and the Philippines.

READ: Njiraini on the spot over Sh17.7bn tax tender award

The committee is investigating a clause in the tender documents that requires companies manufacturing excisable goods to pay SICPA Sh1.50 for every stamp attached to each item – earning the Swiss firm billions of shillings every year. 

Previously, the taxman targeted large consumers such as supermarkets and hotel chains for enforcement of EGMS. But the law has since changed and transferred the burden to manufacturers and importers of the goods.

Early this month, soft drink maker Coca-Cola said it would close shop and relocate its manufacturing plants to neighbouring countries if the taxman insists on levying the charge.

It is estimated that at the rate of Sh1.50 stamp duty imposed on every bottle of water, juice and soda, Coca-Cola would pay the Swiss firm between Sh8 billion and Sh11 billion annually.

Beer maker East African Breweries Limited (EABL) has also opposed the digital tax system, arguing that it imposed an unnecessary cost burden on its business.

READ: Coca-Cola, EABL fight new excise tax system

EABL officials told Parliament early this month that KRA had already sent it a Sh300 million stamp bill arising from use of EGMS.

Mr Juma refuted claims that it was within the authority’s powers to stop illegal purchasing before it occurs, saying entities are not compelled to seek the opinion of PPOA on the preferred method of procurement.

“The choice of a particular method is based on the prevailing conditions which vary from one case to another,” he said.

Eldas MP Adan Keynan, who chairs the PIC, noted that the EGMS contract was awarded based on non-existent information.

KRA and SICPA Solutions SA originally signed the e-tax contract in December 2012 at a cost that was later renegotiated and increased after a June 2013 legal notice that expanded the scope of goods that would be required to use it.

The five-year contract that commenced on April 18, 2013 was worth Euros 20,341,464 (approximately Sh4.8 billion) and was originally to provide 3.55 billion stamps a year.

It was initially intended to produce excise stamps for tobacco products, wines and spirits but the Treasury, through a legal notice number 110 of June 2013 increased the scope to cover beer, bottled water and soft drinks.

This saw an upward adjustment of the contract to Euros 158,213,898 (Sh17.7 billion at current exchange rates) for 12.87 billion stamps.

Mr Juma said he was not privy to information on how the money collected under the EGMS is shared between KRA and SIPCA.

MPs on Tuesday estimated that the taxpayer would remit approximately Sh160 billion annually under the system with a significant portion of it going to the Swiss firm.

PPOA was given three weeks to furnish the committee with correspondence it shared with the KRA regarding the EGMS contract to assist with the investigations.