Tax evasion costs Kenya Sh137bn

What you need to know:

  • The report released on Sunday in Addis Ababa, Ethiopia, also found that Kenya was a victim of a new trend of fraud in the telecommunications sector —Sim box fraud—in which it was losing Sh40.3 million per year.
  • The document prepared by a team led by former South African President Thabo Mbeki, was tabled on Saturday before the Assembly of the African Union during its 24th Summit and launched in Addis.
  • For Kenya, the report demonstrated a pattern of tax evasion and avoidance through trade misinvoicing which takes advantage of the country’s close connections to the global financial system and weak tax regulations.

Multinationals and business people have been costing Kenya Sh137 billion annually through tax evasion and other forms of fraud, a report by an African Union panel revealed.

The report released on Sunday in Addis Ababa, Ethiopia, also found that Kenya was a victim of a new trend of fraud in the telecommunications sector —Sim box fraud—in which it was losing Sh40.3 million per year.

The team of economists from the AU and the UN Economic Commission for Africa warns that Kenya may not meet its Millennium Development Goals unless it seals loopholes paving way for financial flight from the country.

The document prepared by a team led by former South African President Thabo Mbeki, was tabled on Saturday before the Assembly of the African Union during its 24th Summit and launched in Addis.

SEAL LEAKAGES

“African countries like Kenya need to prioritise on sealing the leakages (of money) out of their economies, as they would be able to have sufficient resources to fulfil development goals,” Savior Mwamba, a policy and advocacy manager at Tax Justice Network-Africa in Nairobi said.

“They should corporate at the regional level with their neighbours within blocs like the East African Community and fast-track regional agreements or treaties to stop the illicit financial flows. They should avoid tax competition among each other through tax incentives or lower tax rates as a way of attracting FDI (Foreign Direct Investment).”

For Kenya, the report demonstrated a pattern of tax evasion and avoidance through trade misinvoicing which takes advantage of the country’s close connections to the global financial system and weak tax regulations.

HIDE MONEY

Trade misinvoicing refers to the act of misrepresenting the price or quantity of imports or exports in order to hide or accumulate money in other jurisdictions. The motive could, for example, be to evade taxes, avoid customs duties, transfer a kickback or launder money.

Kenya is losing millions of shillings through hi tech telecommunications fraudsters through the Sim box. Through this, individuals or organisations buy thousands of Sim cards offering free or low-cost calls to mobile numbers.

The SIM cards are then used to channel national or international calls away from mobile network operators and deliver them as local calls, costing the operators revenue.