Goods valued at Sh286 billion are traded across Kenya’s borders without being accounted for, essentially evading Customs tax amounting to Sh71.5 billion.
This is close to 70 percent of what the Kenya Revenue Authority collects in import duty annually.
Kenya loses over Sh70 billion in Customs duty annually due to fraud in cross -border trade, a report released by a US-based illicit financial flows think tank says.
The Global Financial Integrity (GFI) in its latest report on trade fraud found that some goods valued at Sh286 billion are traded across Kenya’s borders without being accounted for, essentially evading Customs tax amounting to Sh71.5 billion. This is close to 70 percent of what the Kenya Revenue Authority collects in import duty annually.
The practice commonly known as misinvoicing is said to be rampant in the trade of footwear, vehicles, medical products, electrical machinery and aircraft with the sub-Saharan Africa countries unable to account for goods worth Sh2.72 trillion traded across their borders.
GFI uses data submitted by governments each year to the United Nations Comtrade database and analyses it to identify the gaps from what their partner countries have reported to identify value gaps, or mismatches, in the reported data.
“Every year, trade misinvoicing creates a value gap of hundreds of billions of dollars in emerging market and developing economy countries, resulting in massive losses of related duties and value-added taxes. This has a corrosive impact on growing economies and the ability of the international community to achieve the UN Sustainable Development Goals by the 2030 deadline,” GFI wrote in the report.
Revenue collection
The fraud now compounds revenue collection deficit Kenya faces every year in a bid to meet the ballooning budget and fund its development budget.
The report, which analysed 135 developing countries and 36 advanced economies in 2017, the most recent year for which comprehensive data are available found that developing countries suffer more from the fraud in comparison to the developed economies.
In East Africa, Kenya was found to be losing more tax compared to its neighbours when analysed as a percentage of total trade value. About 22.62 percent of trade was covered in fraud compared to Tanzania’s 19.11 percent and Uganda’s 17.4 percent. Globally, goods worth $817.6 billion was traded outside the official channels between 135 developing countries and 36 advanced economies1 in 2017.
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