Wealthy tax cheats risk asset freeze in IMF deal

The Treasury has announced a new crackdown on wealthy tax evaders as part of its budget for the year starting July, setting the stage for travel bans, asset freeze and deactivation of Personal Identification Numbers (PINs).

The clampdown is revealed in a commitment that Kenya made to the International Monetary Fund (IMF) to recover unpaid taxes from high-net worth professionals and traders in efforts to raise the national revenues.

The Kenya Revenue Authority (KRA) detectives have identified firms and wealthy individuals that owe it more than Sh260 billion.

IMF discloses that rich self-employed professionals like doctors, real estate investors, and lawyers as well as wealthy individuals will be in the crosshairs of the taxman.

The tax cheats risk travel bans, collection of duty directly from their suppliers and bankers, and prosecution in what promises to be the biggest crackdown yet on high net-worth persons.

The KRA is racing to bring more people into the tax brackets and curb tax cheating and evasion in the quest to meet targets in an economy where Covid-19 economic fallout has battered collections.

Hardships resulting from the pandemic have also forced the State to make minimal duty increases to defuse public outrage over rising consumer goods, especially fuel.

"By June 2021, developing and implementing risk-based compliance strategies for two to three non-compliant sectors including professionals, high net worth individuals, real estate sector," said the IMF on Kenya’s efforts to grow tax collections.

The IMF disclosure comes on the back of its multi-billion shilling loan facilities to Kenya where money flows straight into the budget to top up the public purse.

Under the administration of former President Mwai Kibaki, Kenya kept away from this type of credit, with most of the support from institutions like the IMF and the World Bank coming in the form of project support.

The shift will see the multilateral lender play a role in shaping policy that would require the government to implement tough conditions across many sectors. The KRA has come under increased pressure to raise more taxes for the ever-expanding national Budget as well as debt obligations.

In the financial year starting July, the Treasury has set a target for the KRA to collect Sh1.77 trillion in taxes to fund the Sh3.05 trillion Budget that was presented in Parliament on April 30. This leaves a Sh953 billion hole in the government’s Budget. The KRA, who has perennially missed tax targets, is betting on sealing revenue leaks to boost tax collection.

The taxman says the tax evasion schemes include filing of fictitious value-added tax (VAT) invoices to evade paying taxes running into billions of shillings.

Additionally, the KRA said that other firms have been faking invoices to inflate purchases of inputs in a bid to cut their VAT obligations.

The KRA flagged firms in the construction, importation of hardware and household goods, scrap metal dealers and importers of electronic items, including mobile phones for under-declaring VAT dues.

Others, especially wealthy individuals, have been hiding their sources of income while engaging in luxury spending and accumulation of property including purchase of homes and fuel-guzzling cars.

Self-employed professionals have also been fingered for either evading or under-declaring their tax obligations.

The KRA enforcement unit has been using various databases to pursue suspected tax cheats, among them bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority (KCCA), which reveal individuals who own assets such as helicopters.

Car registration details are also being used to smoke out individuals who are driving high-end vehicles but have little to show in terms of taxes remitted. Kenya Power meter registrations are helping the taxman to identify landlords, some of whom have been slapped with huge tax demands.

The KRA has hired auctioneers to help it track the properties of the individuals and companies who have failed to pay the taxes due.

Vehicles, land, homes, office blocks and workplace equipment will be on the KRA radar at a time the taxman has stepped up the war against tax cheats.

CEOs and other top managers of tax-evading companies could be barred from flying out of the country if the restrictions on flights imposed to limit spread of Covid-19 are lifted.

Some of those who have felt the force of the KRA’s travel bans over tax disputes are motor dealer Foton East Africa’s managing Director Da Li and Libya Oil Kenya general manager Duncan Murashiki.

Should the KRA make good its threat to deregister the PINs, this will mean that the affected individuals and businesses will be cut off from making transactions that require proof of active registration as a taxpayer.

The list of transactions that requires proof of an active PIN certificate includes registration of land titles, approval of development plans, registration, transfer and licensing of motor vehicles and registration of business names and companies.

Others are underwriting of insurance policies, customs clearing and forwarding, payment of deposits for power connections, supplying goods and services to the State, as well as opening accounts with financial institutions.

The KRA stepped up its fight against tax evasion and sought additional funding to hire 1,000 intelligence and enforcement officers in an effort to beef up the investigations on wealthy individuals and firms.