China embassy entangled in KRA cigarette firm tax probe
A Chinese worker monitors the production of Hongtashan cigarettes at the plant of Hainan Hongta Cigarette Co Ltd in Haikou city, south Chinas Hainan Province on August 26, 2012.
The Chinese embassy in Nairobi has summoned directors of a local firm acting for the world’s largest cigarette producer from China, that is under Kenya Revenue Authority (KRA) radar for alleged tax evasion.
The embassy called directors of Yulees Blooms Company Ltd and Shapo Trading Ltd for questioning after KRA investigators, raided the offices and warehouses of the two firms, as part of preliminary investigation into tax fraud, according to three sources familiar with the matter.
The probe, carried out by KRA’s Investigations & Enforcement—a unit that pursues high-stakes white-collar probes, has seen the taxman conduct multiple raids at the firm’s offices and warehouses in Kilimani and on Mombasa Road.
Of interest to the Chinese embassy is probe of world largest cigarette producer, state-owned China Tobacco, which feeds the Kenyan market with Septwolves and Harmonisation brands out of its over 900 products that generated sales of $210 billion (Sh27.1 trillion).
Linkage of a state-owned firm to a probe on alleged tax evasion has reputation risks, at a time when Chinese authorities have launched the largest crackdown on tax cheats, demanding wealthy individuals and companies double-check their taxes for unpaid liabilities.
A source familiar with the summons reckons there are also links to the push for individuals to start paying back-taxes, including from their personal overseas investment gains.
Those summoned include wealthy Chinese national Liu Yuhang and a director of Shapo Trading.
The Chinese embassy asked this publication to send questions by email, but failed to respond. Mr Liu also failed to pick calls nor respond to multiple text messages.
The drive by Chinese authorities to raise revenue, which also includes a large increase in fines and penalties on the private sector, follows a three-year property slowdown that has hit local authorities’ finances and undermined household and investor confidence.
The KRA investigation follows a whistle-blower report that Shapo Trading has been declaring lower purchase prices for its imported products, allowing the firm to pay lower import duty for their shipments, according to investigators who spoke to the Business Daily.
A preliminary investigation does not imply criminal charges and does not necessarily lead to a trial.
Consumption of cigarettes made in China in the Eastern Africa region has been on the increase, following the spread of Chinese nationals in Kenya, with some trying to earn a living selling the products in corner shops.
To shore up revenue, President William Ruto’s administration has deepened its crackdown on tax cheats, and the push is expected to be more aggressive following withdrawal of this year’s finance bill after deadly protests that left over 50 people dead.
A KRA official confirmed to the Business Daily that there have been more than two raids on business premises operated by the two companies. The taxman declined to provide details about the probe.
“Section 6 of the Tax Procedures Act 2015, provides that information obtained in the course of administering tax laws is confidential and hence cannot be shared with third parties, without the express consent of the person to whom the information relates,” said KRA in an e-mail response to the Business Daily.
Shapo Trading Ltd imports mainly two cigarette brands – Septwolves and Harmonisation – into Kenya. Some of the products are then transported to Uganda and Tanzania.
Yulees Blooms is the local sales agent, which distributes the imported products and ships part of the consignment to other two East African countries.
KRA agents visited Shapo Trading’s office at Galana Plaza in Kilimani on October 18, and perused several documents while looking for evidence. On October 22, the taxman’s agents visited a Shapo Trading warehouse on Mombasa Road as part of the investigation.
The Septwolves and Harmonisation brands are manufactured by China Tobacco, which enjoys a monopoly in the East Asian country by controlling over 90 percent of the cigarette market.
China is bucking global smoking trends as cigarette sales surge in the country, fueled by China Tobacco—which has expanded its global reach to over 20 countries via sales offices and manufacturing plants.
