Inside the dirty schemes of tax evasion racket

A multibillion-shilling tax evasion syndicate has been operating in the country.

And while disguised as “small traders”, the people behind the racket are the source of illicit and substandard goods that are the hallmark of business in major towns.

'SMALL TRADERS'

The closure of various business outlets that relied on these goods was the first indication of how deep-rooted the syndicate is.

But it is the current push by politicians and traders — who argue that “tax evasion” is a government ruse to destroy their business — that has awakened State House.

On Monday, and for two days in a row, President Kenyatta visited the Inland Container Depot in Nairobi where goods worth billions of shillings are being held. Last Friday, the President had met a group of these “small traders” at State House, but they don’t seem to have had any luck — then and Monday.

Rather than order the release of the goods, the President only promised to have all the cargo consolidators vetted and gazetted and only then will they be allowed into the import-export trade.

The Nation has established that these “small traders” operating in downtown Nairobi combine various goods in one container and then declare them as transit cargo to avoid paying tax, in what could be bleeding the Kenya Revenue Authority billions of shillings in tax revenues.

The cargo consolidation particularly complicates scanning and computation of tax for the goods, which take long to verify. This is part of the scheme that has seen many goods sneaked into the country without duty paid in a racket that has gone on for years. Any delay in clearance sparks heavy lobbying, including demonstrations, to hasten the process.

On Monday, President Kenyatta said: “There are people who engage in consolidation. They bring goods in containers, claiming they are transit goods, while their real motive is to evade paying tax. That is not right and we will not allow it.”

The visit by the Head of State follows the arrest of 41 suspects interdicted by the Kenya Revenue Authority (KRA) for being part of a tax-evasion racket.

PROJECTED DEFICIT

They were part of the 75 employees said to have been aiding and abetting tax evasion by facilitating irregular clearance of cargo and executing fraudulent amendments of tax returns.

Unable to finance this year’s Sh3 trillion budget, the government is expected to fund a projected deficit of Sh300 billion with external financing. This comes at a time when KRA is expected to miss the tax collection by Sh110 billion. In March, it was behind schedule by Sh55 billion, which is blamed on tax evaders and tax cheats.

The traders, who have conveniently adopted the name “small”, involve a powerful cartel of well-connected individuals who use their influence to intimidate port officials and push counterfeit or substandard goods through border points without paying a single cent.

Under pressure to finance the two levels of government, and to stem the tide of corruption and wastage, President Kenyatta has been forced to take unorthodox steps.

He was at a loss: “If we don’t pay taxes, how will we run the government?”

The powerful individuals also use their political connections to invoke high-level interventions with the pretence that the “small traders” were being frustrated in business, effectively winning sympathy and getting away with economic crimes.

Of late, they have been frequenting radio stations to push for the release of these goods — and managed to have a word with President Kenyatta on Friday.

HIGH-LEVEL INTERVENTION

On Sunday, President Kenyatta went to the container depot, the main battleground between the traders and KRA, which has detained some 1,000 containers of cargo over suspicion of tax evasion.

The Nation has since established that the goods, estimated to be worth Sh14 billion, were imported mainly from China and declared as cargo in transit to Uganda before a KRA internal investigation revealed they were meant to be dumped in Kenya and the owners evade tax of close to Sh4 billion.

In their fashion, the traders rushed to the President to seek high-level intervention. Mr Kenyatta was accompanied by Interior Cabinet Secretary Fred Matiangi, his Principal Secretary Karanja Kibicho, head of a multi-agency task force Wanyama Musiambo and Director of Criminal Investigations George Kinoti, among other officials in the impromptu visit.

“Many times our traders operate without knowledge of the government procedures and we would like all boardroom decisions disseminated to the traders,” President Kenyatta said.

Before the President returned to the Nairobi Inland Container Depot, senior officials from the Trade, Treasury and Interior ministries were in a day-long meeting.

CARGO CLEARANCE

The traders were blaming KRA for delaying cargo clearance on the grounds that they had not paid tax, with allegations that some were required to compromise authorities to sail through with imported cargo. Unpredictable tax regimes and slow cargo clearance were used to compel them into compromising the officials, the traders said.

But a senior KRA official, who requested anonymity, blamed the traders for trying to game the system by declaring goods as transit before dumping them in the country and evading tax.

“We are dealing with a huge tax-evasion ring who are now playing victim and seeking support from higher authorities. Hopefully, all agencies will work together to ensure that everyone pays tax and that is our core mandate here,” the senior source said.

The “small traders” who usually consolidate different items in one container to save on shipping costs are said to have declared the subject goods for transit to Uganda. Most of them own shops in downtown Nairobi while some had no known records of exporting any goods previously, raising suspicions on a scheme to dump the goods locally.

Some of the goods were also suspected to be counterfeit while others were suspected fakes, drawing the attention of the multi-agency task force formed to tame the influx of illegal goods.

Additional reporting by Hillary Kimuyu