KRA recovers Sh100b from cheats as it eyes companies avoiding tax
The Kenya Revenue Authority (KRA) has revealed it recovers up to Sh100 billion every year from tax evaders and those who submit less than what they ought to. It is these tax evaders, said National Treasury and Planning Chief Administrative Secretary Nelson Gaichuhie, which the taxman will focus on to grow revenue.
He reckons that the new focus will help bridge the expected fall in revenue if a pending appeal in court against rulings on taxes levied on petroleum products and minimum tax for companies do not go in their favour.
The revelation was made during the launch of KRA’s tax annual taxpayers month on Monday where Commissioner-General Githii Mburu said that collection may fall by Sh23.7 billion due to the court’s decisions on minimum tax and adjustment of excise duty on petroleum products that was to take effect from October 1, 2021.
He said KRA had projected to collect Sh3.7 billion from the adjustment of excise duty and about Sh20 billion from the minimum tax.
The minimum tax is on gross sales, which applies to all companies whether they make a profit or loss.
“Payment of minimum tax is a sound policy decision. A business cannot continue making losses and not close down while someone who is making sh30, 000 is paying tax. If you are making losses you should close down,” argued Commissioner-General Mburu.
Mburu said there are businesses whose books are in the negative for 10 years and still enjoy services provided by the government.
He noted that the taxman has appealed both decisions on minimum tax and increase in excise duty on petroleum products with the expectation of a fair ruling.
“If we lose, we will see a significant dent into our fiscal space. It means we may not be able to fund certain projects,” he said.
For tax avoiders, Commissioner General Mburu said KRA has a very robust division that deals with international tax.
“They focus on identifying those entities that have international transactions and determining whether their transfer pricing policies are consistent with what you would expect of them,” he said.
He said the division evaluates their tax transfer pricing policies and the way they charge expenses.
For example, a multinational may load costs on a particular jurisdiction with the intent of minimising tax payable. “They may come to Kenya and overcharge us in terms of expenses to reduce our profits and then that revenue they take it on low tax jurisdiction,” he said. “So we are monitoring the expenses they charge on us to make sure these services we are charged to ensure their prices or trade is arm’s length, it means they reflect the prices independent parties would trade at.”
“I believe without a doubt that we have the most robust international tax office unit in the whole of Africa,” he added.
Multinationals use elaborate schemes to protect their money and keep it away from the taxman at all costs.
Private tax consultants are paid top dollar to devise means of routing investments the world over through layers of ownership structures deliberately designed to fool tax regimes.
It is in everybody’s interest to pay the lowest possible taxes as long as it is not illegal,” explained a tax consultant who declined to be named.
“It is all about diversification of investment to cushion from specific country risks.”
He pointed out that different countries have varying risks over time, ensuring that unforeseen problems in one jurisdiction could be compensated by gains made in another.
But the preference of specific destinations such as Mauritius and Jersey has come into sharp focus, informing the current global discourse on their role in abetting tax avoidance and secrecy.
Many reasons have been advanced for the lengthy and complicated schemes including tax efficiency and secrecy from family or perceived business rivals. According to insiders, most high net-worth individuals prefer to spread risk by investing in various jurisdictions.
Such parent companies, some owned by Kenyans, extend loans to local subsidiaries ensuring that most of the earnings made are shipped out to settle the debts in the jurisdictions where the income is hardly taxed. In that way, the owners of the business have effectively been cushioned from the harsher taxation schedule at home.
KRA is already on a good trend in terms of collection considering it surpassed its July-September (first quarter) target by collecting sh476.6 billion against a target of sh461.7 billion. This performance according to the commissioner general reflects sustained revenue growth in the first three months of the year with a performance rate of 103.2 per cent and growth of 30 per cent.
CAS Gaichuhie said the contingency plan if the appeal does not go in their favour is to expand the tax bracket further.
“We will strengthen our revenue collection by enforcement,” he said.
Gaichuhie defended the imposition of increased taxes on Kenyans saying the ‘all taxes are well thought out before being implemented.”
“If you ask many Kenyans they will tell you it is better they drive on smooth roads and pay a small levy,” he said.