KRA takes fight to tax evaders’ door

When Kenya Revenue Authority declared that it had missed its nine-month revenue collection target by Sh69.1 billion, bad corporate results and decline in imports were largely blamed.

The taxman whose collections climbed 7.5 per cent in the quarter has however been battling devious schemes that companies, individuals and traders have been using to avoid paying taxes.

In an interview with Smart Company, KRA Commissioner General John Njiraini said the agency has been on a tough race to patch loopholes, devise systems and institute reforms to beat the web of tax evaders keen on bending every rule to escape the tax net.

“Challenges in tax administration is the order of the day, that is what keeps us busy because we are collecting money and you know that with money people will devise all means just to hold on to it,” he said. “In this business, you are fighting battles all the time and even now as we speak there are people who are thinking how they can hack this system or that they can circumvent new rule.”

Indeed KRA is battling from many fronts, from the ports, to the transit cargo, to shops and farms, as it seeks to corner tricksters who seek to stay out of the tax net.

The slowdown in import business experienced in the third quarter that ate into customs revenues was linked to implementations of reforms and sealing of loopholes through which the taxman was bleeding millions.

Mr Njiraini said container numbers dropped from a high of 28,000 in December to 19,000 in February as the revenue agency plugged holes exploited by some traders to dodge paying taxes.

With the Port of Mombasa clearing over 1,000 containers daily, the tax cheats take advantage of this beehive of activity to misdeclare contents in their containers and mis-invoice to gain undue tax advantages.

The latest attempt to beat the system saw KRA nabbing two Range Rovers and one Mercedes Benz declared as baby walkers and used mattresses at the port. The items valued at Sh28 million had an estimated tax value of Sh8.5 million.

The taxman said this is among the successes realised thus far as the battle to seal revenue loopholes get advanced.

“The biggest problem we have had with customs is that when people bring in goods and make declarations, there is always an incentive to lie, either by reducing the quantities or call it something completely different to evade tax,” Mr Njiraini said.
“The sheer challenge of being able to properly superintend over the large number of containers we receive daily and know that what is in those containers is accurate is the real challenge for customs.”

As it seeks to tighten rules, KRA has collaborated with the Kenya Bureau of Standards to use the current requirement that goods imported into Kenya must be inspected at the point of loading and accompanied with a certificate of conformity with the Kenya standards.

The Pre-export Verification of Conformity (PVoC) assessment programme originally intended to curb influx of fake goods provides a useful data with the accompanying COC that KRA now utilises to curb the cheats mis-declaring goods at the port.

Forged documents
However, tax cheats seem not to run out of tricks. There have been instances where the importers show up at the customs with a COC bearing different details from those captured by the inspection company.

The documents are forged complete with basic features of the inspection companies in attempts to deny the tax man millions in customs revenues.

KRA then went ahead to devise watertight systems to arrest such forgeries.

The taxman said the decline in the number of containers as a result of the reforms have since been reversed. Last month, more than 22,000 containers were cleared at the port signalling a return to the peak attained last year.

The taxman said the raft of reforms it has instituted have begun bearing fruit with increase in revenues of up to 20 per cent registered in the last three months.

The accuracy in customs declarations alone have seen KRA get Sh200,000 more per customs entry signalling the extent of haemorrhage the schemers at the port were causing to revenue collection.

“Although it is early to tell, we have had significant increase in yields because up to December we had an average yield of Sh900,000 from dry cargo per custom entry. By mid this month, the yield per customs entry had reached Sh1.1 million.

That is very exciting for us because that is just three months and we are continuing to tighten and seal the loopholes we may by July we could be talking about 30 per cent or more increase in customer yields. For us this is the biggest custom reform in the last decade,” Mr Njiraini said. The tax agency now targets to increase the yield to Sh1.5 million per custom entry.