Twenty suspects among them directors of five companies are facing various tax fraud charges, including missing trader tax evasion scheme.
Kenya Revenue Authority (KRA) said their investigations revealed that 15 individuals and five companies committed various tax evasion offences with a total tax implication of Sh66.7 million.
In a missing trader scheme, fictitious invoices are generated to depict a business transaction whereas there is no actual supply or movement of goods and services. The invoices are generated to inflate the cost of sales thereby reducing tax payable.
Three directors of two different companies allegedly made false purchases amounting to over Sh1.5 billion in order to reduce their companies’ tax liability through input claims allowable tax transactions whereas there was no actual trade.
“This scheme involves the use of fictitious invoices to depict a business transaction where none existed. Business entities mimic a genuine trading process by trying to meet the legal requirements of a 'supply' yet no supply actually took place,” the KRA said in a statement.
The net effect is that fictitious invoices are used to claim purchases in order to reduce tax liability, evade payment of taxes or claim a tax refund, the taxman added.
The KRA said this is an offence under Section 97 (c and e) as read with Section 104 (3) as well as that of aiding or abetting an offence contrary to Section 101(3) of the Tax Procedures Act.
Section 97 (c and e) states that a person makes a tax offence if they knowingly make any incorrect statement which affects his or her liability to tax; or deliberately defaults on any obligation imposed under a tax law. Section 104(3) states that a person convicted of an offence under Section 97 shall be liable to a fine not exceeding Sh10 million or double the tax evaded, whichever is higher or to imprisonment for a term not exceeding ten years, or to both.
Fraud cases
The taxman said the investigations on VAT declarations for the tax periods December 2021 to December 2023 reveal that the taxpayer purchases were fictitious for the entire period.
Other tax fraud cases to be preferred against suspects at Milimani Law Courts include deliberate omission of income by a taxpayer leading to about Sh11.5 million in tax loss.
There are also two cases of violation of Customs laws involving a clearing and forwarding company and its directors by making false customs entries and a case of stealing over 25 tonnes of milk powder that had been seized by Customs officials.
“The KRA has in recent past reported tax fraud schemes involving suppression of income earned through operating secret bank accounts aimed at concealing transactions that would otherwise translate to actual income earned by an entity for tax purposes,” the KRA said.
Other schemes include the smuggling of goods across the border, concealment of imports, mis-declaration and underdeclaration of imports to evade taxes.
