Kenya Revenue Authority (KRA) has written to commercial banks seeking payment of millions from the accounts of companies it accuses of involvement in a massive tax evasion linked to fake value added tax (VAT) refund invoices.
The taxman says in court papers that the tax refund racket is wide and elaborate, and may have cost the Exchequer more than Sh7 billion.
“That the respondent conducted investigations and unearthed a major tax evasion scheme by the specific companies,” says KRA in response to the companies' suit.
KRA made the revelations in response to a petition filed by 23 companies and their directors challenging the taxman's demand that they pay millions of shillings in lieu of taxes owed. The taxman is seeking to recover about Sh300 million from the small and medium-sized companies.
On Monday, the companies rushed to court accusing KRA of demanding release of the disputed amounts from their bank accounts despite a court order barring it from making such demands.
Crescent Tech, one of the companies that have sued KRA, said the taxman had on September 17 directed its bankers to pay out Sh17.4 million within 14 days, a move it says is in contempt of court.
KRA claims that the tax evasion racket starts with registration of companies and the issuance of a tax PIN. It says the companies, which do not conduct any genuine business or deal in any goods, then start printing and selling Electronic Tax Register (ETR) invoices without actual supplies.= The fake invoices are then sold to other entities, which use them to support fake purchases in order to reduce taxes payable.= The taxman, for instance, accuses Hall Thermotank Equatorial of using such invoices from 21 different companies between November 2015 and February 2017 to account for expenses and reducing its tax obligations by Sh56.3 million. Shanir Distributors is accused of using similar tactics to evade Sh3.5 million, Spectre Chemicals (Sh16 million), Sriman Trading (Sh44.5 million) and Transpacific Limited (Sh16.8 million).
KRA has rejected Hall Thermotank Equatorial director Sivathani Sivaraj' s claim that the taxman is targeting businesses operated by people of Asian descent, arguing that the assertions are only meant to sensationalise the matter.
The companies, however, insist that they have paid all their taxes and that KRA has not granted them the right to be heard and is taking arbitrary actions, including freezing their accounts.
Two businessmen were in April charged in court with evading Sh7 billion tax obligations — the largest such case in Kenya. KRA accused the businessmen of using fictitious invoicing in excess of Sh15, 369,511,856 to execute their scheme.
KRA said it had carried out a sting operation in the residences of the two suspects and confiscated crucial documents and electronic devices, including 10 ETR machines. At the time, KRA said it was investigating 66 missing traders and more than 2,000 beneficiaries of the scheme.