Twenty to face charges in KShs. 67 million tax frauds cases

Twenty suspects including directors of five companies are facing various tax fraud charges including the recently discovered ‘missing trader’ related tax evasion scheme.

The KRA investigations recently completed reveal that 15 individuals and five companies committed various tax evasion offences with a total tax implication of KShs 66.7 million.

In the ‘missing trader’ tax evasion scheme case, three directors of two different companies allegedly made false purchases amounting to over KShs. 1.5 billion in order to reduce their companies’ tax liability through input claims allowable tax transactions whereas there was no actual transaction.

This scheme involves the use of fictitious invoices to depict a business transaction where none existed. Business entities mimic a genuine trading process by trying to meet the legal requirements of a ‘supply’ yet no supply actually took place. The net effect is that fictitious invoices are used to claim purchases in order to reduce tax liability, evade payment of taxes or claim tax refund. This is an offence under section 97 (c & e) as read with section 104 (3) as well as that of aiding or abetting an offence contrary to Section 101(3) of the Tax Procedures Act.

In the current case, investigations on VAT declarations for the tax periods December 2021 to December 2023 reveal that the taxpayer purchases were fictitious for the entire period.

Other tax fraud cases expected to be prosecuted in Milimani law courts include a case deliberate omission of income by a taxpayer leading to about KShs. 11.5 million in tax loss.

There are also two cases of violation of Customs laws involving a clearing and forwarding company and its directors by making false customs entries as well as   a case of stealing of over 25 tonnes of milk powder that had been seized by Customs officials.

The KRA has in recent past reported tax fraud schemes involving suppression of income earned through operating secret bank accounts aimed at concealing transactions that would otherwise translate to actual income earned by an entity for tax purposes. Others schemes include the smuggling of goods across the border, concealment of imports, misdeclaration and under declaration of imports to evade taxes.

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