Twenty suspects, including directors of five companies, face various tax fraud charges, including a missing tax evasion scheme.
The Kenya Revenue Authority (KRA) said its investigations revealed that 15 individuals and five companies committed various tax evasion offenses with a total tax implication of Sh66.7 million.
In a missing merchant scheme, fictitious invoices are created to depict a business transaction when there is no actual presentation or movement of goods and services. Invoices are created to inflate the cost of sales and thus reduce the taxes payable.
Three directors from two different companies allegedly made false purchases worth over Sh1.5 billion in order to reduce their companies' tax liability through input claims of permissible tax treatments when there was no actual trade.
“This scheme involved the use of fictitious invoices to portray a business transaction that did not exist. The business entities mimicked a real business transaction by attempting to meet the legal requirements for a 'supply' but no supply actually took place,” the KRA said in a statement.
He added that the net effect is that fictitious invoices are used to claim purchases in order to reduce tax liability, evade paying taxes or claim a tax refund.
The KRA said this is an offense under Section 97(c and e) as read with Section 104(3) as well as an offense of aiding or abetting an offense inconsistent with Section 101(3) of the Tax Procedure Act.
Section 97 (c and e) provides that any person commits a tax offense if he knowingly makes any untrue statement affecting his tax liability; or
Willfully fails to comply with any obligation imposed under tax law. Section 104(3) provides that a person convicted of an offense under section 97 is liable to a fine not exceeding Sh10 million or twice the tax evaded, whichever is higher, or to imprisonment for a term not exceeding ten years, or to both.
Fraud cases
The taxman said that investigations into value-added tax returns for the tax periods from December 2021 to December 2023 revealed that the taxpayer’s purchases were fictitious throughout the period.
Other tax fraud cases that will be preferred against the suspects in the Milimani law courts include intentional omission of income by taxpayers resulting in tax loss of about Sh11.5 million.
There are also two cases of violation of customs laws involving a clearing and shipping company and its managers by making false customs entries and a case of theft of more than 25 tons of milk powder seized by customs officials.
“The KRA has in the recent past reported on tax fraud schemes involving the suppression of income earned through the operation of secret bank accounts intended to conceal transactions that would translate into actual income earned by an entity for tax purposes,” the KRA said.
Other schemes include cross-border smuggling of goods, concealment of imports, false declaration of imports, and tax evasion.