The Kenya Revenue Authority is investigating more than 50 companies for Value Added Tax (VAT) fraud-related cases running into billions of shillings, commissioner for intelligence and strategic operation Giithi Mburu disclosed on Monday.
The tax evasion syndicate is prevalent among firms dealing in high-value products such as alcohol and cigarettes, Mr Mburu said.
The companies manipulate VAT invoices to claim billions of shillings in refunds every year for non-existent supplies, a phenomenon technically referred to as “missing trader” fraud.
Others use the loophole in exports, which are VAT zero-rated, only to sell goods in domestic markets and pocket the 16 per cent VAT.
“It is a big problem which could be running into billions (of shillings in revenue loss). Traders manipulate exports so they come and claim VAT because exports are zero-rated,” Mr Mburu said.
“Investigations are going on. I may not be able to specify how much is to be recovered, but the work is in progress.”
Despite the implementation of the Electronic Goods Management System (EGMS) to curb illicit trade in wines, spirits, tobacco and beer, Mr Mburu said the taxman was still battling sale of illegal alcohol cigarettes.
“We have a challenge in terms of cigarettes which we are dealing with and alcoholic products,” he said.
“The challenge is still there. We have some illegal products within the country, but we are handling that.”
A section of liquor firms in mid-January questioned why some players were selling 205 and 250-millilitre spirits to distributors for between Sh70 and Sh75 per piece despite the Sh200 excise duty per litre and VAT levies.
KRA in September 2016 introduced new generation excise stamps for wines, spirits, tobacco, and beer whose features allows distributors to verify genuine products using smartphones through an app dubbed “Soma Label”.
The ongoing investigations will narrow down to individual perpetrators, Mr Mburu said, but declined to disclose the firms under probe.