KRA targets firm in Sh800m Afya House scam for tax fraud

Estama Investments, the company at the centre of Afya House’s Sh1 billion mobile clinics scandal, has run into fresh legal trouble after the taxman moved to court seeking to freeze its bank accounts for tax evasion.

The Kenya Revenue Authority (KRA) says in its suit that Estama has not paid taxes on the Sh800 million it was paid for supplying mobile clinics to the Ministry of Health, but has since moved some of the money to secret offshore bank accounts.

KRA alleges that Estama Investments has been suspiciously moving funds received from the controversial Ministry of Health tender without meeting its tax obligations.

Estama has not filed any tax returns nor paid a single cent in taxes since its formation in 2008, KRA says in its petition before the court.

The company is also accused of overstating its costs while supplying the mobile clinics, a move that significantly reduced its value added tax (VAT) liability.

“An analysis of Estama Investments’ business transactions reveals a possible overstating of purchases in order to reduce VAT liability. This is evident from the fact that Estama Investments claimed purchases amounting to Sh819,839,113 against imports valued at Sh33,764,330.”
Estama Investments is yet to respond to the suit, but has been given until January 20 to do so.

KRA says in court papers that it intends to probe Estama’s books of accounts from the year 2010 to date with the aim of establishing how much money the firm owes in VAT, withholding, income, PAYE and directors’ taxes.

KRA has enjoined owners of the firm — Irene and Njage Makanga — in the suit alongside Business Capital Access Limited, another company that the couple co-owns.

Estama Investments has one account with Co-operative Bank while Business Capital Access Limited has three KCB accounts and two others at Equity Bank.

READ: Revealed: Taxpayers lose Sh5bn in NYS-style Afya House theft

KRA wants seven accounts associated with the couple, including a personal account they have at Equity Bank, frozen until it has completed investigations into Estama’s books.

“Estama Investments was incorporated on June 19, 2008 and has since 2009 not filed any returns or paid taxes.

KRA says in court papers that it has credible information that Estama Investments has been moving funds from its known accounts to the other respondents’ accounts and other accounts, some of which are offshore.

The taxman says it has been tracking movement of the Sh800 million from the Ministry of Health and has attached its findings in court as evidence.

The court documents show that Estama moved Sh776 million to Business Capital Access’ account – Sh420 million of which was moved to two other accounts it holds at KCB.

One KCB account received Sh370 million while the other got Sh50 million. Some Sh356 million of the Sh776 million is still being trailed.

Business Capital Access then transferred Sh38 million from one KCB account to an Equity Bank account and wired Sh330 million to an unknown offshore account.

Estama Investments was left with Sh24 million balance in its account, an amount it has since used to settle a number of payments.

READ: Afya House paid Sh850m more for container clinics

The firm paid Sh5 million to Evamarine Limited, a supplier, Sh6 million its majority shareholder Njagi Makanga and Sh7 million to an individual identified as Mumbi Makanga.

KRA has already written to Equity Bank and KCB asking the lenders to preserve any funds left in Estama, Business Capital Access and the Makangas accounts.

It has also written to Estama Investments informing it of the intended audit of financial records between 2010 to date.

“Unless an order is issued preserving the funds, KRA’s efforts to raise tax assessments and recover taxes due shall be defeated as at the moment there are no other known assets of Estama Investments,” the taxman says.

Information contained in KRA’s digital platform — Simba — indicates that Estama paid Sh1.4 million for each container clinic that it then sold to the Ministry of Health at Sh10 million.

Health secretary Cleopa Mailu said in November that Estama was awarded the tender in July 2015 and supplied the mobile clinics before the end of the year.

Estama’s questionable dealings with the Ministry of Health were revealed in an internal audit report indicating that the taxpayers may have lost up to Sh5.3 billion in irregular dealings at Afya House.

The audit revealed that Estama was paid millions of shillings despite failing to adhere to KRA requirements on the use of electronic tax register (ETR) receipts, tax compliance and PIN Number.