China firms caught up in billion-shilling tax probe

Several Chinese multinationals are under investigation by the Kenya Revenue Authority (KRA) over allegations of tax evasion that could run into billions of shillings. 

In the past few weeks, three Chinese multinationals have clashed with the KRA over tax evasion, with two ending up in court.

The latest Chinese company under scrutiny is ZTE Kenya Ltd, a subsidiary of the giant Chinese technology company ZTE, the Sunday Nation has learnt.

In a letter written on April 15, 2016, KRA says the company could be asked to pay as much as Sh1.44 billion in unpaid corporation and withholding tax since 2011.

According to documents seen by the Sunday Nation, the company — which has won big contracts with the government and local technology firms — had reportedly thwarted attempts to have an audit started in November 2015 by not providing documents, forcing the taxman to calculate tax owed using alternative means.

“We observe with great concern that the company has fluctuated this audit by failure to provide documentation. Consequently, we have resolved to use information available to us to compute taxes which in our opinion are due,” KRA wrote after months of waiting for documents promised at a recorded meeting in December 2015.

The taxman alleges ZTE Kenya Ltd officials were not responding to emails and that their key contact person could not be reached on phone.

At a field audit, according to KRA documents, efforts to unearth suspicious transactions were frustrated after the Chinese company gave block figures without any clear description.

The account for the year 2013 is also said to have had descriptions in Chinese.

Last month, Mr Huang Hongyou, director of construction company China Aero Technology International Engineering Corporation, was charged in court with several counts, including failure to file tax returns in the required language.

“On diverse dates between 2012 and 2015 in Nairobi, jointly with others not before this court, being the director of China National Aero Technology International Engineering Corporation and a limited liability company, failed to maintain records in the official language as required by the commissioner,” read one count in the charge sheet.

FEEBLE EXCUSES
He was also accused of failing to appear at KRA offices when summoned in May 2016, prompting his arrest on June 17, this year, according to the charge sheet dated August 30.

In the ZTE Kenya Ltd case, minutes of a meeting attached to the KRA letter show that the company had given supposedly flimsy excuses in December, including being busy with end-year activities, and unavailability of those responsible for some documents, which prompted a request for more time. 

A Ms Dai Haoyi, who represented ZTE in the meeting, gave commitments including the provision of data on the projects the firm had undertaken between 2010 and 2013, as well as their values by December 25, a promise she allegedly didn’t honour.

“(She) requested for time to export data from the system. She explained that the year was ending and that the system was slow.

She explained that this tax audit was too much for the company as the company needed to focus on its core business.

She further said the ZTE chief executive officer was "planning to meet KRA commissioners to seek a postponement of this audit", the minutes of the joint meeting read.

According to the taxman’s documents, attempts by KRA officials to argue that most of the documents did not need to be generated from the system and that they could be retrieved from the company shelves only attracted more excuses and complaints.

On Saturday, ZTE communication manager Robert Wang dismissed the amount quoted in the KRA documents and said the company was co-operating with the taxman.

“We have been going through an audit by KRA. I don’t know where you got that document claiming that we owe KRA that amount and that we have been frustrating them. For now we are co-operating with KRA,” he said on phone. 

Last week, KRA asked the High Court to freeze four bank accounts of a Chinese technology company on suspicion that it has been evading taxes and stashing proceeds from its business in Hong Kong.

The taxman said in court filings that X-Tigi has been grossly under-declaring income tax due to KRA from sales, and has not been remitting Pay as You Earn.

REVENUE LOSS

Detectives from the taxman’s office say they are investigating X-Tigi and its director Gao Fei — a Chinese — on tax evasion charges and there were fears the funds could be transferred from the accounts. 

“Mr Fei has never filed returns or any taxes yet he earns income and runs a US dollar account with considerable deposits. There has been regular funds transfer to a bank account in Hong Kong suspected to be income derived from the business.

"The director and agents of X-Tigi are Chinese, hence there is a high risk of them leaving the country without payment of taxes found due after the assessment, or frustrating the recovery of taxes,” says Asenath Obaga, a KRA investigator.

KRA insisted that the only alternative to freezing X-Tigi’s accounts is ordering the Chinese firm to deposit security in court that is equivalent to the amount that shall have been found to be due to KRA.

New X-Tigi Technology Company was registered in Kenya on December 8 last year with its headquarters at Vision Plaza in Nairobi’s central business district.

The allegations of tax evasion come at a time when the Chinese government and companies from the Asian giant are increasing their presence in Kenya, especially in construction and technology sectors.

On Thursday, the China-Africa Development Fund (commonly known as CADFund), which has set aside Sh500 billion for developments in Africa, opened its Nairobi office that will fund housing projects jointly done by Chinese and Kenyan contractors.

KRA did not immediately responded to our inquiries.

But Commissioner General John Njiraini has in the past indicated that tax evasion by some Chinese companies could be costing the country billions of shillings.