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KRA steps up war on tax dodging foreign firms

Times Tower, the headquarters of the KRA, in Nairobi. FILE PHOTO | NMG
Times Tower, the headquarters of the KRA, in Nairobi. FILE PHOTO | NMG   

The Kenya Revenue Authority (KRA) has more than doubled staff at its international tax office in order to fast-track audits on multinationals it suspects of improper transfer pricing.

The taxman has beefed up employees at the unit to 40, up from 16 previously, as it focuses its lens on foreign firms that continue to report low profits or losses despite smaller players operating in the same sectors doing well, pointing to possible cases of manipulation in order evade tax.

"Why would you have a company making losses through and through and you don't consider closing down?" KRA’s chief manager at the tax unit, George Obell, posed Wednesday.

Transfer mispricing happens when multinationals operating in a country sell to parent firms or subsidiaries abroad at lower prices, leading to declaration of lower earnings or even losses thus denying the country billions of shillings in tax revenues annually.

The practice, which has been blamed for loss of revenues amounting to billions of dollars in Africa, has also taken root in other developing markets where multinationals have a presence.

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"We are also looking at fast-tracking the arbitration process for easier collections," said Mr Obell while speaking at KRA’s third annual tax summit in Nairobi today.

Clarify laws

Deloitte East Africa tax partner Nikhil Hira, however, said the country should refresh its tax administration rules on transfer pricing to make them fair and detailed.

"This approach of saying they (multinationals) are guilty without even having understood what they are doing is wrong. We need to study and understand whether they are doing that,” Mr Hira said.

"What's key and what pushes people to comply is where that tax is being used. Some are shifting it offshore because not convinced they are being used for what they are intended. That is going to push people away from morality side," he added.

Mr Obell said the KRA has clawed back about Sh25 billion in the last three financial years through June 2017 after audits on 65 international firms.

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