KRA spies identify rich Sh250bn tax evaders

Kenya Revenue Authority (KRA) detectives have identified wealthy individuals and companies that owe it an estimated Sh250 billion in what promises to be the biggest crackdown on high net-worth persons.

The taxman’s intelligence and strategic operations, which has a team of about 100 investigators, has in recent months been investigating rich people’s sources of income and their expenditure against their tax remittances.

It has also been analysing companies’ financial dealings, especially firms doing business with the government and counties, to unearth tax cheats through matching their payments and income declared to KRA.

Githii Mburu, the KRA Commissioner-General, told Parliament last week that the surveillance of the rich and companies has revealed the potential to collect Sh250 billion that remains unremitted to the taxman.

"We already have established and it is in our record (the Sh250 billion). Whenever we profile a company or an individual taxpayer, we look at what they are earning, their sources of income and everything else vis-a-vis what they have declared," Mr Mburu told the Public Accounts Committee (PAC).

"These are individuals and companies that we have profiled and we have notified them," said Mr Mburu, adding that the KRA is aggressively pursuing the business people.

The crackdown follows an order from President Uhuru Kenyatta in November last year for KRA to keep a watch on high net-worth individuals whose lifestyles are not in tandem with the taxes they pay.

So far, big names like tycoon Humphrey Kariuki and owners of Keroche Breweries -- Tabitha Karanja and her husband Joseph Karanja — have been charged in court, where they are facing accusations relating to alleged non-payment of taxes running into tens of billions of shillings.

The KRA enforcement unit has been using various databases to pursue suspected tax cheats, including bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority (KCCA), which reveals 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 who have been slapped with huge tax demands.

"There are those who are already in the tax base but don’t pay correct taxes. We have those who have payroll numbers but they don’t declare income from their properties like rent,” said Mr Mburu, adding that the individuals are now on the KRA radar.

The KRA says a sharp increase in imports of the luxury items and multi-million-shilling investments in real estate has opened its eyes to a potentially massive tax leakage, which if tapped could yield billions of shillings in additional revenues to the Exchequer.

The taxman’s argument is supported by the fact that only a few Kenyans have officially registered as belonging to the high-income earners’ bracket despite the massive growth in conspicuous consumption in areas such as Nairobi.

This is buttressed by a recent wealth report showing Kenya had about 356 billionaires, placing the country at number four in a ranking of top African countries based on the super wealthy persons. The AfrAsia Bank report says these individuals have net assets above $10 million (Sh1 billion).

The taxman says these figures show a clear mismatch between actual wealth in the hands of individuals and what they have officially declared.

Tax defaults

Kenya is known to have a large group of super-rich individuals (especially the politically connected), who have hidden their wealth in trusts and a labyrinth of companies so as to evade taxes.

Some 50 police officers from the Directorate of Criminal Investigations (DCI) have been seconded to KRA to up investigations into tax defaults.

"There has been lots of surveillance from KRA. They want to find out for instance why is one paying a tax of Sh20,000 and driving a high-end Range Rover," said Nikhil Hira, a tax expert and director at law firm, Bowmans.

"There has been unprecedented agency notices from the KRA to banks that has seen a number of accounts frozen. The KRA is now demanding to get taxes directly from individuals and company accounts".

The taxman has in recent months been seeking details of suppliers and contractors hired by county governments in the quest to tighten the noose on individuals and firms evading tax.

"We have identified these individuals and companies. For the record, the highest number of non-compliance is among the county suppliers," Mr Mburu told MPs.

"We are notifying some of them and you will see these letters. I don’t think counties are very keen on people they do business with in terms of ensuring that they pay taxes," he told MPs.

KRA missed targets

The taxman is racing to bring more people into the tax brackets and curb tax cheats and evasion in the quest to meet revenue targets that it has persistently missed in recent years.

Kenya’s tax revenues for the year to June rose 9.6 per cent compared to the previous year to Sh1.49 trillion, but KRA still missed its collection target by Sh91.2 billion due to sluggish corporate earnings, reduced economic activity and freeze in hiring amid job cuts.

This has left the KRA and the Treasury under huge pressure to widen the tax net and clamp down on cheats amid growing expenditure needs, especially from county governments.

The authority has hired a team of auctioneers to help it track properties of individuals and companies who have failed to pay the tax due.

The taxman told Parliament that the property auctions will help clear mounting tax arrears — which stood at Sh192 billion in June 2017.

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

Individuals and companies targeted are those that have lost disputes against the KRA in court or at the tax tribunal.