How KRA signed Sh17bn contract it cannot cancel

The Kenya Revenue Authority (KRA) signed a Sh17 billion excise tax stamps supply agreement with a Swiss firm without any provisions for compensation in the event of a breach of the contract, Parliament heard yesterday.

Members of Parliament described the contract for the supply of Excisable Goods Management System (EGMS) with SICPA Securities Solutions as skewed and asked Solicitor- General Ken Ogeto to explain how it was approved.

Mr Ogeto found himself in trouble when he revealed that the contract only ties KRA and not SICPA to make reimbursement in the event of partial or full termination of the contract.

“The contract states that in the event of partial or full termination and if KRA is in default, the authority shall reimburse SICPA within 30 days all reasonable investments and expenditure made by SICPA,” Mr Ogeto said while reading a clause in the contract.

The contract document, however, does not obligate SICPA to pay KRA in the event it breaches the contract. KRA awarded SICPA the contract in 2013 and in 2015 expanded the scope through single sourcing.

Mr Ogeto said the Attorney-General gave KRA the go ahead to execute the contract based on the facts that KRA presented to the State Law office for review.

The National Assembly’s Public Investment Committee (PIC) is investigating the award of euros 158,213,898 (Sh17 billion at 2017 exchange rate) EGMS contract to SICPA through single sourcing. The committee is also probing a clause in the tender documents that requires manufacturers of excisable goods to pay SICPA Sh1.50 for every stamp attached to each item – earning the Swiss firm billions of shillings annually.

PIC chairman and Mvita MP Abdulswamad Nassir demanded to know why KRA was tied to a contract that will see it pay SICPA when the company is not making any investments. It is Kenyan manufacturers who have been made to buy the stamps and bear the cost of redesigning their operations to suit the level of operations required for purposes of affixing the stamps.

“There is no building or investment that SICPA is putting up. It is only that people are buying their stamps. It appears that SICPA drew this contract, gave it to KRA and the authority forwarded to you for rubber stamping,” Mr Nassir said.

KRA in 2013 contracted the Swiss firm to supply 3.5 billion excise stamps to be affixed on beer, wines and spirits and tobacco. The scope was in 2015 expanded to cover all excisable goods except motor vehicles and KRA directly procured SICPA to provide 12.8 billion stamps.

Mr Nassir, who recently returned from Switzerland where the committee went to investigate the procurement, said SICPA was categorical that it sealed a water tight contract with KRA and that it is not exposed in any way.

“I raised this matter when I was in Switzerland recently and the Swiss company said the contract is watertight on their part. They are convinced that even if MPs amended the law to exclude some excisable items, they are home and dry,” Mr Nassir said.

Gladys Wanga (Homa Bay Woman Representative) questioned the extent to which the AG was involved in drafting or scrutiny of the contract.

“It appears the work of the AG was reduced to clerical. The AG should have drafted this contract to cover Kenya and the KRA in the event of its termination,” she said.

The committee directed Mr Ogeto to furnish it with a legal opinion on the economic impact should the contract be terminated or if a court rules that one of the excisable items should not be covered.