The arrest of more than 40 Kenya Revenue Authority (KRA) employees over corruption allegations has lifted the lid on deeply entrenched cartels that have for years made a fortune by contributing to the loss of billions of shillings in revenue.
The detailed inner workings of the tax cartels include colluding to cheat the automated system, with some workers said to receive as much as Sh500,000 per day in bribes.
The arrests, executed after a months-long operation by a team from the Directorate of Criminal Investigations, the National Intelligence Service and KRA’s own investigative wing, netted senior and middle level officers suspected to be at the centre of a web that has seen the taxman lose billions of shillings mainly through tax evasion.
On Saturday, sources within the multi-agency team told the Sunday Nation that the Friday arrests were mainly “disruptive” before detectives shift focus to top officials, including commissioners and their deputies.
Those arrested in the raid at Times Towers, the KRA headquarters in Nairobi, and other offices across the country, are expected in court Monday but investigators, who spoke in confidence, said part of the group would be used as prosecution witnesses once plea bargains are reached.
At least 75 suspects are expected to be arrested in this first round of the operation.
The arrests come at a time KRA is mulling a change of guard as the two terms of Commissioner-General John Njiraini come to an end.
KRA has over the years faced criticism owing to its failure to meet revenue targets.
It has also emerged that a multi-agency team disguised as new employees had been collecting information to be used as evidence for at least four months.
The Sunday Nation was given the finer details of the sting operation that saw detectives narrow down on dozens of senior and middle officers.
The detectives were mostly working as newly employed junior officers like clerks, IT experts and even interns to unearth the corruption web.
At the heart of the endemic corruption is a well co-ordinated cartel that over time perfected and institutionalised ways of abetting tax evasion at a fee by rigging the system.
It entailed officers from various departments operating in cahoots with brokers and clearing agents to facilitate tax evasion.
“This includes collusion to undervalue imports, fake export entries for manufacturing companies to assist in the dumping of export goods locally, leading to massive loss of value added tax and evasion of income tax,” a source who spoke in confidence said.
“Manipulation of the iTax system to assist importers and wholesalers evade VAT was also rampant.”
Those arrested included chief managers, managers, supervisors and revenue officers.
In a statement shortly after the operation, KRA announced that those apprehended had been interdicted.
“The practices in question include facilitation of fraudulent clearance of cargo, fraudulent amendment of tax returns so as to help individuals evade taxes and the irregular issuance of tax compliance certificates,” the statement added.
Director of Public Prosecutions Noordin Haji also released a statement on the same day, saying the officers in question had betrayed the trust of the public and their employer.
“This is yet another regrettable occurrence within the public sector that calls for decisive action in order to restore sanity in the management of our revenue collection,” Mr Haji said.
When the investigators moved to Times Towers four months ago, they set out to map out the areas they suspected could generate water tight evidence capable of yielding convictions.
They identified six areas and started meticulous collection of evidence.
The first was the issuing of tax compliance certificates to Kenyans and how those who had tax to declare got the vital document without meeting their obligations.
The second area was issuing of PIN certificates to foreign companies without following due process and for which the KRA employees received hefty bribes.
One of the notorious areas which saw government lose billions was the deletion of tax liabilities’ history from KRA computers, especially when the institution changed Legacy Tax Data System to Integrated Tax Management System in 2014.
“The government has paid dearly for the reform projects but the returns are not visible. Even clerical staff are able to manipulate the systems and reduce tax, wipe out penalties and interest,” a source said.
The fourth area was the unauthorised change of taxpayers email addresses such that when KRA sent messages, the information would never reach the intended recipient.
That way, the taxpayer would claim, and rightly so, that they never received any communication from KRA.
The fifth was the deliberate misdeclaration and under declaration of taxes to Customs officials, mainly at the country’s points of entry.
This was notorious at Kilindini harbour where a top of the range vehicle, say a Toyota Land Cruiser V8 would be declared as a Toyota Axio. It means if one could have paid, Sh2 million as import duty, he ended up paying as little as Sh200,000.
“Electronic items would be declared as agriculture input goods and therefore no taxes would be paid since the latter is duty free,” the source added.
The last area was the declaration of rental income where lower income would be declared by landlords with the connivance of KRA insiders.
So lucrative is the syndicate that in some instances identified by the investigators, junior and middle level KRA employees would take home as much as Sh500,000 in bribes daily.
“It is so entrenched that a senior or middle level employee would have his juniors use his password and make changes to the system at a fee from a corrupt taxpayer and the money would be shared by all,” the source told the Sunday Nation.
Investigators are trying to unravel how an officer with authority to access the system would be in Nairobi at a given time yet his password would be used to access the system in, say, Mombasa, Kisumu, Thika or Eldoret.
The most peculiar aspect of the investigations is that the document processing centre on the 12th floor of Times Towers is the most sought after unit.
Almost every KRA staff wants to work there.
Those stationed at the centre do everything to ensure they are not transferred to other areas.
Despite KRA regulations stating that a worker cannot access this area with his or her phone, the rule only exists on paper.
When the employees at the centre learnt of the operation, some rushed to flush their cellphones down the toilet.
“At the data centre, bribes come by the minute. No import or export entry can be processed without money, which is sent and received via M-Pesa. Once money is sent or "withdrawn" through a friendly agent, a broker sends a text message to confirm and the officers then act and approve the entry,” a KRA insider, who spoke on condition of anonymity, said.
The investigations established that within the last two months alone, the officers at the centre of the syndicate collectively pocketed Sh40 million in bribes, estimated to be a mere 30 per cent of what the government lost at the time.
The money was traced to their bank and M-Pesa accounts as well as cash transactions.
On Thursday evening, the DCI officers, their counterparts from NIS and a backup of regular police in uniforms were asked to assemble at specific points in Nairobi, Mombasa and Thika the following morning.
They arrived at their various stations at 5.45am but were asked to await further instructions.
All this time, only their superiors knew of the impeding arrests.
At exactly 9am, instructions came that they move to KRA offices at Times Towers, Sameer Park and CBC buildings, while in Mombasa, the detectives were directed to go to Forodha House and the Kilindini Harbour.
The Thika team pitched camp at the local KRA offices.
At 9.45am, the team leaders finally issued instructions to the officers to execute the arrests, which caught the targeted officers off guard.
They were whisked away to waiting cars and driven to various police stations.
Investigators now believe some employees who may have questions to answer may opt to resign as they do not know how soon the dragnet would catch up with them.
“The rot at KRA is so deep and entrenched that it will take years to undo it. The arrests were part of shock therapy which is aimed at disrupting the loss of revenue. Much must still be done,” one of the investigators said.